Corruption and the Oil Industry: A Study of Libya's Challenges

This report delves into the pervasive issue of corruption within Libya's oil industry, examining its historical roots under the Gaddafi regime and its persistence in the post-revolution period. It explores the detrimental effects of corruption, including the weakening of institutions, the undermining of the rule of law, and the impact on the country's political stability and economic growth. The report analyzes the ineffectiveness of anti-corruption measures, the challenges faced by the National Oil Corporation, and the role of public procurement in facilitating corruption. It also discusses the 'resource curse' and the influence of regional and ethnic divisions on Libya's oil politics. Furthermore, the report examines the legal and regulatory frameworks, including the constitution, statutes, and regulations, and their limitations in combating corruption. The report highlights the need for transparency in the management of natural resources to promote stability and growth in Libya, while also providing a comprehensive overview of the challenges and complexities of the oil industry.

Running head: CORRUPTION AND OIL INDUSTRY: LIBYA
Corruption and Oil industry: Libya
Name of the Student
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Author Note

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Introduction
Corruption is perceived as a significant impediment to all the companies that are carrying
out their business operations in Libya. Every sector in the Libyan economy usually suffers from
widespread corruption amongst which the oil industry and public procurement sector are affected
the most. For the past several decades, the oil sector of the country has been subjected to abuse
caused by small elite surrounding Gaddafi. Corruption and conflict generated within the oil
industry had recently resulted into falling of one government threatening to tear the nation apart.
Being the ninth-largest oil reserve in the world and largest reserves in Africa, Libya’s oil sector
has had three detrimental outcomes1. Firstly, it intends to make authoritarian regime more
durable; secondly, it kept the Gaddafi regime in power for more than forty years and lastly,
resources intend to enhance accelerate corruption.
In recent years, unstable and poor nations have become a significant source of energy and
minerals which has stimulated strong economic growth in certain developing countries but
consistency in such growth has been frequently impede owing to the prevalence of corruption
and instability in such resource-rich nations that acts as impediments to consistent growth2.
Corruption was widespread under the Gaddafi’s rule and the situation had deteriorated
during the post-revolution period. The institutional framework to overcome corruption is
ineffective and the rule of law is challenged by violence and instability3. Libya is in a state of
disorder where the nation is not prepared to restore the oil industry particularly under
circumstances, where the government lacks unity and competes for power to exercise control
1Mahbob, Mohamed. The Impact of the Oil Sector and Political Conflicts on the Libyan Economy. Diss. Western
Illinois University, 2017.
2 Mahdavi, Paasha. "Institutions and the ‘resource curse’: Evidence from cases of oil-related bribery." (2017).
3Etelawi, Abdulrazag Mohamed, Keith A. Blatner, and Jill McCluskey. "Sustainability and Depletion Accounting: A
Case Study of Oil in Libya." Environment and Natural Resources Research 7.1 (2017): 34.

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over the basic oil infrastructure. Even if the political actors unanimously come to an agreement,
the National Oil Company [NOC] persists to experience technical challenges while the UN-
backed Libyan Government of National Accord [GNA] must exhibit that it has capable of
managing the oil revenues effectively4.
The country witnessed a power struggle for controlling the oil industry of Libya, which
has threatened to intensify the splits within the nation and weaken the frail authority of the UN-
backed Libyan Government of National Accord [GNA]. This power struggle has left the
politically neutral chairperson of the Libyan National Oil Corporation [NOC] to notify the GNA
about its transgression of authority. The GNA is alleged to have attempted to invade some of the
responsibilities carried out by the NOC by closing the oil ministry5.
The Libya Constitution Drafting Assembly is still under process of writing the
Constitution, which ultimately incorporate laws that have been set out in the Constitutional
Declaration, enforced after ousting of Gaddafi. The research paper focuses its discussion in the
prevalence of corruption within the oil industry, being the biggest revenue source of the country.
It shall further highlight about the various tools that have been implemented to uproot and the
inefficacy of such apparatus caused by corruption that has ultimately, undermined the
enforcement of the laws within the nation6. The exercising of control over the natural resource
wealth usually permits dictators to hold on to the power by making payments to political cronies,
terrorizing people and rigging elections. Based on the present scenario, it is understood that
presence of transparency in the management of the natural resources of the country is imperative
4 Hove, Mediel. "Post-Gaddafi Libya and the African Union: Challenges and the road to sustainable peace." Journal
of Asian and African Studies 52.3 (2017): 271-286.
5Ayub, Zainal Amin, et al. "State of Libya." Higher Education in the Middle East and North Africa. Springer,
Singapore, 2016. 107-126.
6Heydemann, Steven. "Civil War, Economic Governance & State Reconstruction in the Arab Middle East." Dædalus
147.1 (2018): 48-63.

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to eliminate corruption. It is understood that a transparently managed oil sector might provide the
mechanism with the necessary stability and growth in Libya.
In order to reduce the potential counter-revolutionary influence of the tribes and the tribal
sections that had come into existence under the monarchy in 1970, Qadafi abolished the legal
authority of tribes and reconfigured the traditional administrative boundaries into mixed tribal
zones. For filing up the lacunae that generated after abolition of the tribal system, Colonel
Qadhafi established the Arab Socialist Union (ASU) in 1971 as the sole political party in the
country which served as the primary link between the regime and the people7. The ASU lacked
the authority to mobilize Libyans towards a political participation. Qadhafi’s regime was
incapable of procuring human resources and authority as sources of political power and resorted
to using coercion and veto to implement political authority.
Similar to the ASU, the committee system of people failed to generate spontaneous
popular participation, given that majority of Libyans remain indifferent to the Qadhafi’s system
of popular democracy. Colonel Qadhafi criticized the resistance to people’s committees as it
weakens the goals of rebellion, but in case of the Libyan people, the ostensible democratic
committee system was simply cosmetic, given the real authority vested within the Libyan leader.
This situation demonstrates the division of the formal administrative/political institutions and
extra-legal revolutionary mechanisms of political control became a continuing feature of Libyan
political life and persist even today8.
This phenomenon is commonly known as the resource curse, which affects both the
producing as well as the consuming nations. It not only leads to poverty but also paves a way to
7 Idris, Iffat. Libyan Political Economy. GSDRC Helpdesk Research Report 1385). Birmingham, UK, 2016.
8 Lacher, Wolfram. "Libya’s local elites and the politics of alliance building." Mediterranean Politics 21.1 (2016):
64-85.

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terrorism thus, empowering dictators and autocrats such as Gaddafi, thus, affecting the global
petroleum markets9. Regional and ethnic divides have long played a fundamental role in the
petrol politics of Libya. The eastern region of the nation produces a majority of oil in Libya and
includes 80 percent of its reserves. However, the region was neglected under Qaddafi and the
situation remained the same in Libya post ousting of Gaddafi irrespective of the fundamental role
that they played in the revolution to overthrow the former regime. On the south of the county,
minority Toureg and Tebu tribes have experienced cultural and political discrimination that was
caused by majority of the Arabs. In 2012, the grievances of the labors were not addressed
effectively due to the negligence of the government, which resulted in oil blockades and labor
strikes that ultimately affect the oil industry of Libya.
In Libya, areas that process and produce oil should receive a portion of revenues that are
produced by the local oil operations. It is important to ensure that population and their need must
be taken into consideration assuring that areas with more people suffering from poverty must
receive more resources10.
Constitution
Constitution is said to vary from one nation to another, however, only in terms of forms
and types of constitution. The main objective of every Constitution is common which is to
address the fundamental issues of a nation. Such issues are related to the economic and political
establishment of the nation and include the freedom rights that are guaranteed to every citizen of
the concerned country. In case of Libya, it had no unified and permanent Constitution, however,
since 1969 several constitutional proclamations and acts have been introduced that has the
9 Sizer, Lydia. "Libya’s Terrorism Challenge." (2017).
10 Elwerfelli, Ali Hassan. "The role of Oil in Economic Development-The case of Libya (1970-2010)." (2016).

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impact of a Constitution. A constitutional proclamation was introduced in 1969 that repealed the
previous Libyan Constitution that was in force formerly. Later, in 1977, several essential
legislations and documents were issued which included the Promotion of Freedom Act no. 20 in
1991. These legal documents and legislations including the Constitutional Proclamation in 1969
were perceived as Constitutional Acts that were in force until 2011.
However, under Article 37 of the Constitutional proclamation stated that this
proclamation should also be treated as temporary until a permanent constitution has been issued.
Nevertheless, the Proclamation is still in effect. In order to reduce the potential counter-
revolutionary influence of the tribes and the tribal sections in 1970, Qadhafi abolished the legal
authority and reconfigured the traditional administrative borders into mixed tribal zones.
Moreover, local officials were replaced and dismissed by new local administrators. In order to
fill the lacunae left by the closure of the tribal system, Colonel Qadhafi established the Arab
Socialist Union [ASU] in 1971 as the sole political party in Libya for serving as the primary link
between the regime and the people.
Statutes
Under the monarchy, the legal system was fundamentally secular with the sharia law that
is used to deal with personal issues. Qadhafi’s confrontation with ulama began during 1970s
with the ‘Cultural Revolution’ that intend to replace all the existing sharia law. Qadhafi
introduced the Third Universal Theory [TUT] as a common-sense interpretation of Islam that
incorporated new set of laws that are based on the re-interpretation of the Quran that would be
beneficial to human kind.

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The official separation between revolutionary and political authority was announced at
the General People’s Congress [GPC] and replaced the RCC to be the highest decision-making
authority in Libya. The GPC was the Libyan equivalent of Parliament that is presided by a
Secretary and comprise the secretaries of the BPCs, unions and professional association. The
GPC was responsible for criticizing and discussing about the issues that has the force of law and
acted as means to ratify the decision of the Colonel. From the perspective of Gramscian sense,
the Colonel authority imposed the GPC on the Libyan population as while it pretended to be an
institution of consensual decision-making, the private reality was that it served the Qadhafi
regime assisting hi to persist his domination.
Rules/ Regulations
In the absence of a permanent constitution in place, the Constitutional Declaration
introduced in 2011 has become a current supreme law after the ruling regime had fallen down.
The Libyan Constitution Drafting Assembly has not yet finished incorporating provisions
relating to elimination of corruption from the system of the country11. As is well-known that the
country relies on the Libyan Criminal Code and a specialized anti-corruption law in the absence
of the a general anti-corruption law in place. The High Commission on the Application of
Standards of Patriotism and Integrity established the High Authority for the Application of
National Standards of Integrity, which was enforced after the post-revolution period.
Bribery, nepotism, abuse of office and embezzlement are commonly practiced despite
amounting to criminal activities. However, the Libyan government seems to have failed to
11 Pradella, Lucia, and Sahar Taghdisi Rad. "Libya and Europe: imperialism, crisis and migration." Third World
Quarterly 38.11 (2017): 2411-2427.

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implement any anti-corruption law in an effective manner. This inefficacy is an outcome of the
inefficiency that exists within institutional framework that is actually accountable for the
enforcement of the anti-corruption laws within the country12. Moreover, the country lacks
institutional safeguards that are required to prevent corruption and exercise financial control
along with effective integrity mechanisms. In addition, the government officials fail to adhere to
the disclosure laws and instead are themselves involved in corruptive activities. Lack of
transparency in budget planning and implementation is not subjected to any independent audits,
thus, demonstrating lack of government accountability.
Public Procurement Sector
The public procurement sector carries out a very high fraud risk for companies that tend
to perform business in Libya. As is well known that favoritism is widely prevalent amongst the
procurement officials, it is also common that public funds are often diverted to individuals and
companies because of corruption13. Furthermore, irregular bribes and payments are common
practices within the procurement sector. There have been concerns relating to the capability of
the Libyan government to uphold the public procurement contracts that have concluded before
Gaddafi was ousted.
Nevertheless, the state-owned firms govern the domestic market, which provides ample
of opportunities for bribery and corruption. In addition, the Privatization and Investment Board
of Libya has made progress in transforming nationalized enterprises into privately owned
companies. Although foreign companies are permitted to take part in tenders, but the biding
12 Ali, Issa, and Charles Harvie. "OIL PRODUCTION REHABILITATION, FISCAL POLICY AND ECONOMIC
DEVELOPMENT IN LIBYA: A FUTURE VIEW." (2015).
13Vandewalle, Dirk J. "5 LIBYA." Isolate Or Engage: Adversarial States, US Foreign Policy, and Public Diplomacy
(2015): 140.

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criterion and the investment processes lack precision. Thus, it makes difficult if the foreign
companies are subjected to discrimination while opposing with local enterprises14.
Natural Resources
The high levels of corruption in all the other sectors suggest that the extractive industries
and natural resources in Libya are also subjected to corruption. The state-owned companies
dominate the gas and oil industry in Libya where the management of Libyan government of the
oil revenues lacks transparency15. In addition, the National Oil Corporation rejected the request
to release a report regarding its oil deals and transactions demonstrating its non-compliance with
the disclosure laws in 2013. Further, during mid-2014, the government established first oil
corruption committee of the country that has been conferred with the responsibility to investigate
the administrative and financial corruption within the oil industry.
As mentioned earlier, that the unstable countries have become a significant source of
minerals and energy especially for developed and developing worlds as is evident from the fact
that the Sub-Saharan African oil exports have developed by 40 percent since 2000 and Europe
receives a significant percent of its imported oil from Africa16. This has led to acceleration in the
economic growth in certain developing nations but their economic growth is often impeded due
to the instability and corruption prevalent in the resource-rich nations. It is often observed that oil
money that has been intended for the poor people within a nation is spent either on showcase
projects or ultimately on end up in the pockets of the rich instead of being used in a productive
investments.
14 Idris, Iffat. Libyan Political Economy. GSDRC Helpdesk Research Report 1385). Birmingham, UK, 2016.
15 Mahdavi, Paasha. "Institutions and the ‘resource curse’: Evidence from cases of oil-related bribery." (2017).
16 Windsor, Duane. "7 A theory of public–private sustainable development partnerships." Corporate Responsibility
and Sustainable Development: Exploring the Nexus of Private and Public Interests (2015): 151.

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Protection of Property Rights
Qaddafi’s populist economic model permeated the Libyans with a concept that they have
a strong ownership over their oil capital and raised their hope regarding the manner in which the
oil wealth would be disseminated amongst the population. Libyan property rights are intricate
owing to the former governmental policy actions and a weak regulatory environment. The
regulatory system of Libya lacks transparency, clarity with respect to the responsibilities and
function that are to be carried out by the Libyan government institutions. The Libyan
government eliminated all private property rights in 1978 along with all the private businesses
later within the same year17. A lack of coordination and harmony between the different bodies of
law and restricted institutional capacity with poor transparent procedures along with absence of
effective monitoring procedure makes it difficult to address the issues prevalent in the extractive
industry.
In the event of such vagueness associated with the property rights require the government
to develop a policy to include a new framework for property rights within the nation, given that
the former governmental approach to the enforcement, policy and law was not consistent. After
the ouster of the Qaddafi’s regime, the ambiguity in the property rights may be addressed by
implementing conflict-mediation measures apart from the other measures. In order to develop or
execute such measures, it is important that the country refer to the post-socialist regimes, post-
conflict situations or measures that have been adopted by former owners to deal with the issues
pertaining to restitution of property.
Despite the measures in place, a failure to consult and identify or share information with
new stakeholders in the extractive industry can be attributed to the ineffective planning and
17Ayub, Zainal Amin, et al. "State of Libya." Higher Education in the Middle East and North Africa. Springer,
Singapore, 2016. 107-126.

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communication process results in restricted ability to identify the various interests within the
nation. Consequently, the national policies have failed to include the rights and practices with
respect to the extractive industry and natural resources18. In order to deal with these deficiencies,
the new government in position is expected to ensure transparent and equitable measures are in
place that must guarantee equal accessibility rights to public funds and petroleum contracts.
Conclusion
The Libyan regulatory system lacks clarity and signifies an absence of transparency with
respect to the responsibilities and function of the Libyan government institutions. Although the
legal framework provides criminal penalties against official corruption, the government had
failed to implement such law in an effective manner and the officials themselves have engaged
themselves in corrupt practices with impunity. Lack of transparency is evident in the government
management of oil revenues, security force and national economy. Despite being a signatory to
the UN Anti-corruption Convention, Libya is not a party to the OECD Convention on
Combating Bribery of Foreign Public Officials in International Business Transactions.
Corruption persists to exist virtually in all the economic sectors, particularly within the oil sector
and government procurement.
Despite the prevalence of corruption and conflict within the oil sector that has split the
country between several parties that are contending for control, Libya’s future persist to depend
on the oil industry, generating significant amount of government revenue. The death of Gaddafi
has opened the door to political open-to-all ISIS and warring militias. In the middle of such
18Sawani, Youssef Mohammad. "Security sector reform, disarmament, demobilization and reintegration of militias:
the challenges for state building in Libya." Contemporary Arab Affairs 10.2 (2017): 171-186.

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political conflict, some have attached their expectations on the greatest natural resource: oil
sector.
Colonel Muammar Qaddafi’s rule over the country has instilled the oil industry with a
mixture of socialist and capitalist personality that has become difficult to manage since he has
been removed from his reign. Under his rule, Libya developed as a typical petro-state in which
Qaddafi and his family were significantly responsible for playing a crucial role in benefitting
from and overseeing the oil wealth of the nation19. Qaddafi’s populist economic model
permeated the Libyans with a concept that they have a strong ownership over their oil wealth and
raised their hope regarding the manner in which the oil wealth would be disseminated amongst
the population. Under the Qaddafi rule, oil wealth of the country was usually distributed through
bloated public sector and sponsored basic commodities.
The transactional oil-distribution system along with the low levels of productivity
signified that the existing legal framework and the government failed to establish sophisticated
institutions of a varied economy or state institutions that could turn this wealth into greater
value20. Again, the lack of an effective bureaucracy within the nation has attributed to the
Qaddafi’s highly personalized hold on state affairs. Hence, his removal from power was a strike
at the very foundation of the system, thus, giving rise to competing armed groups and political
forces that intends to challenge, control or replace the mechanisms in which the oil wealth of the
people is disseminated. The oil sector became central to the power struggles as the militias
smuggle for oil for profit, disenfranchised communities blocking the energy infrastructure to
extort their share of wealth or new political forces seek regional control over wealth distribution.
19Lacher, Wolfram. "Libya’s local elites and the politics of alliance building." Mediterranean Politics 21.1 (2016):
64-85.
20Elwerfelli, Ali Hassan. "The role of Oil in Economic Development-The case of Libya (1970-2010)." (2016).