Libya’s most powerful military leader might be dead and that could impact oil markets

  • Libya's most powerful military leader reportedly suffered a stroke this week — and no one can confirm whether he is dead or alive.
  • Local media has reported General Khalifa Haftar's death, while sources close to him insist he is recovering.
  • Haftar's death could mean a renewal of violence that could hit the OPEC country's oil output and create new opportunities for groups like ISIS.
Retired Libyan Army general Khalifa Haftar speaks during a press conference in the town of Abyar, 70 km southwest of Bengahzi, on May 17, 2014.
AFP | Getty Images
Retired Libyan Army general Khalifa Haftar speaks during a press conference in the town of Abyar, 70 km southwest of Bengahzi, on May 17, 2014.

Libya's most powerful military leader reportedly suffered a stroke this week — and no one can confirm whether he is dead or alive.

Local media has reported General Khalifa Haftar's death, while sources close to him insist he is recovering. If the former is true, it could mean a renewal of violence and a power struggle that could hit the OPEC country's oil output and create new opportunities for extremist groups like the Islamic State militant group.

Often described as the oil-rich state's "most powerful warlord," Khaftar, who heads the powerful but internally fractured Libyan National Army (LNA), has been a stabilizing force in a country wracked by civil war since longtime leader Muammar Gaddafi was deposed in the Arab Spring uprisings of 2011. Many fear that his absence could usher in the kind of power vacuum and chaos that followed Gaddafi's death.

Haftar effectively controls eastern Libya, including the "oil crescent" in the Gulf of Sirte that holds four major ports that comprise the lion's share of Libya's oil exports. The 75-year-old general, who holds American citizenship, was formerly a Gaddafi ally but returned to Libya in 2011, after years in the U.S., to join the NATO offensive that toppled the dictator.

A fractured country

Haftar has successfully managed to hold numerous competing factions and tribes together to keep the LNA unified. And he's effectively presented himself as an answer to radical Islamist groups in the region, thereby gaining strong support from Egypt and the United Arab Emirates (UAE).

Eastern Libya is home to its Tobruk-led government, which is in competition with the internationally-recognized Government of National Accord (GNA), based in the capital of Tripoli in western Libya. Haftar's eastern camp is supported by Egypt and the UAE. Technically, the two bodies are supposed to be united under the GNA, but they do not fully recognize one another and thus make their own laws regardless of joint consensus. Welcome to Libya.

Libya map
AP

Exports from the four ports under Haftar's control are Libya's main source of much-needed hard currency. Libya's population of 6.3 million sits above the largest proven oil reserves in Africa, but benefit practically nothing from them — the United Nations estimates about 40 percent of the country lives below the poverty line.

Because he's so revered in eastern Libya, any potential successor to Haftar would likely face serious challenges from within the LNA, and his death could trigger deep internal conflict, said Sarah Al Shaalan, a Middle East and North Africa researcher at risk consultancy Eurasia Group. Egypt and the UAE appear committed to preventing a splintering of the east, but a worst-case scenario would be the outbreak of further violence.

Risk to oil production

Haftar's incapacitation will have direct implications for the hydrocarbon sector, according to Chris Elsner and Paul Tossetti of IHS Oil Markets.

The general's efforts were vital in maintaining much of Libya's oil production. It took Haftar's concentration of power in the east, aided by his military forces, to open up all Libya's central export terminals, "marking the start of the most recent rise in Libyan output back to 1 million barrels per day (bdp) from a range of 300,000 to 500,000 bpd," the analysts said.

"That resurgence — and the associated revenues — have bought a measure of temporary stability for Libya and provided some scope for political negotiations to move forward," they added.

So increasing chaos would only further damage Libyan national security, creating opportunities for militias and traffickers already exploiting the crisis, Al Shaalan said. "The Islamic State would also likely exploit the situation to accelerate attacks intended to disturb oil exports in north-central Libya."

And a weakened LNA would encourage its opponents to recapture main positions like oil terminals or military sites.

A picture shows a general view at the Zueitina oil terminal in Libya on September 14, 2016.
Abdullah Doma | AFP | Getty Images
A picture shows a general view at the Zueitina oil terminal in Libya on September 14, 2016.

For rival forces waiting for the news on Haftar, this may be their window, and the country could witness a rush to target oil infrastructure and disrupt operations in the event of his death. Eurasia Group estimates this would lead to a decline in average production in Libya from 1.1 million bpd in 2018 to roughly 900,000 "in the most benign scenarios."

Markets will focus not only on potential declines, but on the risk of much broader instability in the east that would have a more meaningful impact on production.

Given tightening global oil supplies, a 200,000 bpd decrease in Libya would add further support to oil prices, and combined with the increased likelihood of a collapse in the Iran nuclear deal in May, bolsters the case for oil market bulls.

In the meantime, Libyans await news on the fate of one of their most influential leaders — and by extension, the fate of their country.