Amid chaos, Libya risks losing greatest trading partner

Amid chaos, Libya risks losing greatest trading partner

The power struggle in Libya poses a great risk to Italian investment in the war-torn country, as thousands of migrants flee to Italy’s southern shores.

Decades-old oil vessels, once a beacon of the booming Libyan oil industry, now routinely carry a different piece of precious cargo: migrants headed for the Italian coast.

As conflicts and power-struggles continue to rage in Syria, Libya, and throughout sub-Saharan Africa, thousands of refugees have embarked on the perilous Mediterranean crossing from Libya to Italy. Ports along the Libyan coast have become popular points of departure for migrants seeking refuge in Europe. Militant groups have taken advantage of the security vacuum in Libya, charging hefty fines for space in Italy-bound boats piloted by human traffickers.

A total of 170,100 refugees arrived in Italy by boat in 2014, according to the International Organisation for Migration (IOM). This marks a 300 percent increase in year-over-year arrivals from 2013, when Italian authorities recorded 42,925 arrivals. A growing desperation for refuge coupled with the deteriorating situation in Libya has contributed to the increase in arrivals, pushing more ill-equipped boats out onto the Mediterranean. The IOM estimates more than 3,200 migrants died at sea last year.

The influx of refugees has put a unique strain on the already-struggling Italian economy. While unemployment across Italy stands at 12 percent, job-seekers in the South, where migrants often settle down, has spiked to over 20 percent. This figure is even higher among young people, pushing up poverty numbers and straining government welfare programs.

Despite calls for Italian intervention by the Libyan government, Italy has largely avoided involvement in the brewing Libyan civil war. The country has been in chaos since the ouster of Muammar Qaddafi four years ago, with rival militias battling for resources and power. Libya’s internationally-recognized government under Prime Minister Abullah al-Thinni is based in the eastern city of Tobruk, while the Islamist group Libya Dawn has seized control of the capital, Tripoli, and instated a rival government.

Italian investments at risk

The rival governments in Libya have given rise to militant groups looking to profit from the security void, putting massive Italian investments at risk of collapse. Italy, the former colonial power in Libya, has invested billions in Libya’s oil fields, ports, and infrastructure since the 1950’s.

Eni SpA, Italy’s largest oil and gas conglomerate, has suffered losses as Libya’s oil ports fall into control of militant groups. Blockades on key ports have reduced Libya’s oil output to as little as 230,000 barrels per day (bpd), down from 1.4 million bpd a year ago. With the price of oil slumping below $50 per barrel, drops in Libyan production and slowed economic growth in Italy have caused analysts at Citigroup to downgrade Eni’s stock from neutral to sell.

Vulnerable Italian investments in Libya extend far beyond oil, however. The Italian industrial firm Salini Impregilo Group is building a 1,700-kilometer highway along the Libyan coast, financed by the Italian government. Finmeccania SpA, an Italian aerospace and defense company, has invested millions in Libyan border control, defense systems, and security infrastructure, much of which is at risk of falling into the hands of armed militias.

With so much at stake, why is Italy hesitant to provide more than just temporary refuge for migrants?

The obvious answer is a lack of international urgency to bring a political solution to the situation in Libya. Although a new round of UN-sponsored peace talks between the various warring factions were set to begin last week in Geneva, the Tripoli-based parliament refused to negotiate outside of Libya. The first round of UN-sponsored talks were conducted in September 2014, and made little progress.

Italy is also hampered by a lack of political and economic capital at home. Prime Minister Matteo Renzi recently moved forward with economic and structural reforms aimed at boosting the strained Italian economy, despite fierce resistance from unions and center-left Italian lawmakers. Negotiating an intervention in the prolonged Libyan conflict while attempting controversial reforms to labor guidelines and investment at home would be an insurmountable task for the embattled Prime Minister.

In the meantime, hope for a solution will remain in the form of further UN-backed negotiations. Another round is set to start in Libya in February. Until then, Italy will continue to watch from a distance.

About Author

Rami Ayyub

Rami is an analyst with a US Defense and Space firm, where he works in strategic planning and finance for Civil and Defense programs. He holds Bachelor degrees in Finance and Classical Music from the University of Maryland, College Park.