Your Move, Zeidan.

(For background, see my February 3 article for Foreign Policy, “Federalism and Libya’s Oil“.)

The big news out of Libya this morning is that Ibrahim Jadran–the renegade federalist and mastermind behind the country’s 8-month old oil crisis–has found a buyer. A North Korean tanker was reported to have entered the Gulf of Sidra on March 4. Jadran’s men control three terminals in the Gulf: Es-Sider, Ras Lanuf and Zuietina, with a combined export capacity of 600,000 b/d. The tanker approached Es-Sider earlier this week but docked this morning. It is highly unusual for North Korean tankers to enter the Mediterranean via the Suez Canal. The deal certainly proves Jadran is desperate to sell oil; no reputable company will do business with him.

A spokesman for the group told Reuters, “We started exporting oil. This is our first shipment.” Now it’s up to the besieged and broken government in Tripoli, led by Prime Minister Ali Zeidan, to act fast and make sure that ship never reaches its destination. Zeidan may be distracted by yet another no-confidence vote scheduled for tomorrow. He’s overcome previous attempts to remove him from office but dissatisfaction with him as at an all-time high. However risky, Jadran has given Zeidan the perfect opportunity to show the kind of leadership Libyans so desperately need right now.

Zeidan should start with the following:

1) Mobilize Libya’s modest navy. By world standards, Libya’s navy is nothing special. But on two previous occasions, forces loyal to the central government have mobilized small fleets carrying men with rifles and rocket-propelled grenades. Warning shots were good enough to turn away tankers last August and again in January. In those cases, the tankers were driven away while empty. Now, however, with the tanker loaded and presumably trying to exit the Gulf of Sidra soon, it may be wiser to keep the tanker bottled up near the port.

2) Zeidan needs to work the phones starting with Egypt. This is absolutely essential. The North Korean tanker entered through the Suez Canal and it will take the same route back. Zeidan could demand that the ship be denied access because it is carrying a stolen cargo. The Egyptians might even be convinced to let the ship enter and then have it redirected to a port before it can exit the 120-mile waterway.

Libyan-Egyptian relations have seen a rough patch lately due to border insecurity and the targeting of Egyptian citizens within Libya. But, by every indication, Zeidan’s relationship with Egyptian authorities is still in good shape. Egypt saw it’s first post-Morsi government quit early this month. That shouldn’t prevent Zeidan from appealing to decision-makers, like Field Marshal Abdel Fattah al-Sisi, or managers at the Suez Canal Authority who are ready to deny illicit shipments.

One NOC official told Reuters that the 250,000 barrel tanker is owned by a Saudi company, presumably a privately-owned one. If so, Zeidan can call on Riyadh to intervene, withdrawing whatever insurance the ship has or preventing any payment for Suez tolls.

3) Contact European allies and the U.S. to intercept the vessel if all else fails and direct it to a friendly port, perhaps in Europe. Libya’s navy is simply not equipped to pursue this North Korean tanker. If it escapes the Gulf of Sidra, a more sophisticated force will have to intervene. For all of Zeidan’s failures, he is well-respected by his international peers; he just met with foreign ministers from the EU, U.S. and Gulf Arab states in Rome on March 6 for the Friends of Libya conference. All have proclaimed their willingness to help however they can. The U.S. ambassador to Libya, Deborah Jones, has repeatedly warned separatist groups not to sell oil outside of official channels. She had this to say on Twitter when news of Jadran’s heist broke today:

Safira Deborah Tweet 3-8-2014

safiradeborah tweet 2

The loading of a tanker in Libya’s east is a game-changer. But Jadran hasn’t won yet. In fact, this could backfire badly, hurting his brand even more. No one knows where the ship will go after loading oil. But if it’s destined for North Korea, Jadran will have to face the fact that he’s doing business with a regime that is in many ways reminiscent of Qaddafi’s brutal, arbitrary rule. Jadran’s revolutionary credentials may be compromised as a result.

What’s more, Jadran has not once hinted at what he’ll spend the money on if he’s successful in selling oil for tens of millions of dollars. Roads? Highways? Hospitals? Schools? We just don’t know. What we do know is Jadran’s men haven’t been paid in six months or more. It’s not too cynical to assume that paying his small army with oil revenues is his first priority. How might that shape public opinion going forward? Can you be a man of the people after taking your cut off the top? Countless Arab leaders have done that for decades. But Libyans won’t stand for it–not after forty years under Qaddafi.

This stunt confirms how desperate Jadran has become. It also provides Prime Minister Zeidan a chance to shine.

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Update: No “Geneva bump” for Iran after EU insurance ban lifted

A few weeks ago I blogged about what the six-month suspension of the EU insurance ban could mean for Iran’s oil exports. My reading of events was optimistic for Tehran. India looked like the country best positioned to increase oil imports because it was never able to develop an alternative arrangement. Imports fell dramatically as a result. Other, more marginal barrels could be headed for Turkey, officials also said. “For Iran, every barrel is significant,” I argued on January 17. But it’s looking more and more like the “Geneva bump” will not materialize.

EU-based insurers issued a series of warnings last month, calling for caution. Gard AS of Norway–the largest protection and indemnity (P&I) insurer–had this to say: “Members and clubs should proceed on the basis that beyond 20 July 2014, clubs will not be able to respond to any claims presented in respect of liabilities arising during the 20 January/20 July suspension period… This has the effect of rendering the current suspension of sanctions on insurance cover, and in particular P&I cover, of very limited, if any, value to shipowners.”

Testifying today at a Senate Foreign Relations Committee hearing, Treasury Undersecretary David S. Cohen confirmed that all insurance claims, “from contract to delivery to payment,” must be settled by July 20. P&I claims regularly take a year or more to collect, process and pay out. This is understandable given that huge amounts of money involved. However, for Iran, it means selling more oil won’t be easy. Without EU insurance, tanker owners will be left on the hook to pay for any accident, damage or disaster. We will still see month-to-month variations in Iran’s oil exports but a sustained boost is hard to imagine without EU insurance.

In my January 17 post, I also suggested China might decide to import more oil from Iran it sees P5+1 talks going in the right direction. Chinese imports climbed in the last two months of 2013 but it’s too soon to tell whether or not Beijing is really rolling the dice–and daring the U.S. Treasury to act if talks with Iran fail.

Negotiations for a comprehensive, final nuclear deal will begin on February 18.

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New at FP: Federalism and Libya’s Oil

You can read my newest article at Foreign Policy, titled “Federalism and Libya’s Oil“.  It focuses on Libya’s loudest and most troublesome federalist, Ibrahim Jadran, and his struggle to sell oil independently. From one of the opening paragraphs:

While other oil fields and facilities were shut by protests last year, Jadran is unique for his ambition and media savvy. His oil blockade costs Libya about $60 million every day; his leadership of an aspiring regional government makes him the most recognizable thorn in the government’s side; and his youthfulness, immaculate suits, and talking points make the 32-year old look and sound like a serious politician. He is successful insofar as he remains unchallenged, although rookie mistakes have hurt his brand lately. Six months into the oil crisis he precipitated, Jadran has not budged — but he also has nothing to show for it.

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Post-Geneva Oil Prospects for Iran

In keeping with the Geneva deal, the EU ban on insurance (and reinsurance) of Iranian crude oil will be lifted for six months beginning on January 20. As a result, some customers may import more Iranian oil. China could also surprise the U.S. and buy more Iranian crude if talks between Iran and the P5+1 go well. How much more is anyone’s guess but Iran will view any improvement as significant.

The EU ban helped slash Iran’s oil exports from about 2.3 million b/d to an average of 1.1 million b/d over the last 18 months. It exacted the most pain in the summer of 2012, when it first went into effect. Many of Iran’s customers were caught unprepared and had to scramble for alternatives. Iranian oil exports collapsed in July of that year, falling to a shocking low of about 850,000 b/d.

So what does the suspension of the EU ban mean for Iran’s customers?  That depends. Japan is currently the only country providing a “sovereign guarantee” in case of disaster. Tokyo is on the hook for up to $7.6 billion in the event an Iranian tanker is damaged or blamed for an environmental disaster. It will be happy to see EU insurers step in soon. Import volumes will not be affected, according to recent reports.

India stands to be the biggest winner because it never found an alternative to the EU. Some refiners could not accept Iranian-based insurance and a sovereign guarantee never materialized. As recently as December, Indian imports from Iran were in doubt.

Indian imports from Iran fell 40 percent in the first nine months of last year after EU firms refused to insure facilities processing Iranian oil—not just tankers carrying it. Deadly fires at two different facilities, one in May and another in August, forced Hindustan Petroleum to play it safe and cut off Iran. MRPL didn’t accept Iranian insurance until late summer. Essar Oil Ltd., another major Indian refiner, accepted Iranian insurance earlier but Iran still lost about 150,000 b/d in sales last year compared to 2012.

India’s steep drop-off of crude imports from Iran may be used as an excuse to ratchet up imports this year. Though India received a new sanctions waiver from the U.S. in November, the argument can and will be made that reductions were so severe in 2013 that the U.S. should be more understanding in 2014. Total imports may be lower than previous periods but the suspension of the EU ban will allow Indian refiners to achieve more “normal” volumes, at least for six months while the Geneva deal is observed.

Chinese officials were tight-lipped throughout 2012 but supposedly accepted Iranian insurance. This was a gamble given that Iranian-based insurers like Kish P&I were unproven. The risk was easier for Beijing to shoulder because it could presumably pay for any disaster if Iran failed to do so, thus creating a backstop sovereign guarantee for oil imports. For China—Iran’s number one customer—replacing all or most Iranian oil was not an option. Imports averaged about 420,000 b/d in 2012-2013. Volumes so large are not easily replaced.

Like China, South Korea accepted Iranian insurance in October 2012. Turkey, which has averaged about 105,000 b/d going back more than a year, never officially acknowledged how it is insuring Iranian imports. Japan took a different route with its sovereign guarantee of $7.6 billion. Those that took Iranian insurance accepted much smaller offers of $1 billion per tanker, per disaster. Iran’s national tanker fleet has a good record of safe carriage, however, allowing some to settle for less without fearing the worst.

The EIA says Iran’s oil exports are “not expected to increase significantly.” That’s fair. But how would Iran define “significantly”? Turkish Energy Minister Taner Yildiz said his country might take 35,000 b/d more now that EU insurance is an option; Indian officials say refiners could import an extra 50,000 b/d through March, maybe more if Iran is ready to agree to better terms. Privately-owned companies could still push the envelope.

While Japan and South Korea have slashed imports hard and fast, China could play chicken with the U.S. Treasury if Beijing believes P5+1 talks with Iran will succeed. China received a new waiver in November although imports from Iran were stable compared to the previous 180-day review period. Knowing there is a one-month delay between imports and the release of customs data, China cut imports from Iran to just 250,000 b/d in October. The sharp decline was reported just before the U.S. extended waivers in late November. The following month, China revealed November imports from Iran had jumped to 538,000 b/d.

The White House has played nice with China so far. Will China return the favor or go after cheap Iranian barrels? The possibility can’t be dismissed. Zhuhai Zhenrong, a Chinese state-owned trader, was sanctioned in 2012 for its relationship with Iran. But it remains less vulnerable because it has little or no exposure to the U.S. financial system. Last month, a former trader from the company asked Reuters, “More pressure? Do you think they [Zhuhai Zhenrong] really care?”

Combined, China’s Unipec and Zhuhai Zhenrong are contracted to purchase 505,000 b/d from Iran this year—about 85,000 b/d more than the imported average over the past two years. What they actually lift is up to their discretion but it could be influenced by ongoing talks.

The Geneva deal holds that Iran’s customers will be allowed to import “current average amounts” of 1 million b/d total. But that depends on enforcement. Some, like Turkey and India, may try to recover lost crude and satisfy existing contracts. China could use the Geneva deal and its seat at the P5+1 talks to as a guide for imports as well. It might even bet on a breakthrough and buy more oil.

Iran, for its part, should be expected to pursue any and all angles to increase exports, even if that means serious discounts or extended credit terms to begin retaking its market share.

For Iran, every barrel is significant.

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What are the Saudis Thinking?

Two stories made a big splash today, suggesting US-Saudi ties are fraying and that Riyadh is hugely disappointed by U.S. policies. Saudi intelligence chief Prince Bandar bin Sultan is at the center of both the Wall Street Journal and Reuters articles. European diplomats reportedly met with Prince Bandar (pictured) over the weekend. He made it perfectly clear to them that Riyadh was ready to scale back cooperation with the U.S. on Syria and arm rebel factions now fighting the Assad regime. Sources told Reuters that Saudi Arabia would reconsider arms deals with the U.S. and oil sales just days after the Kingdom rejected a two-year non-permanent seat on the UN Security Council.

Three recent developments have inspired Saudi Arabia to beat its own path of late. With this post, I’m trying to capture the logic driving Riyadh. This post is deliberately sympathetic because the media has largely failed to express their views. Saudi leaders haven’t articulated them carefully, either.

Start with Syria. For two years the U.S. has hinted at arming rebels but held back. These hints hardened into explicit promises in June, when the Obama administration first accused the Assad regime of using chemical weapons and crossing the president’s “red line.” In response, the White House pledged to arm rebels. Even then, the goal was not to oust Assad, but to create a stalemate that would force both sides to negotiate.

Countless stories since then have made it clear that rebels are not receiving enough arms or aid from the U.S. and that allies have withheld aid so as to not anger Washington. As reported by Greg Miller on October 5, an ongoing CIA training program “is so minuscule that it is expected to produce only a few hundred trained fighters each month even after it is enlarged, a level that officials said will do little to bolster rebel forces [.]”

The August 21 chemical attack on a Damascus neighborhood changed everything—it seemed. With 1,400 dead, evidence mounting, and outrage rising, the Obama administration prepared to strike Syria. Warships were positioned off the coast and the White House appeared deadly serious. It encouraged the Saudis to rally Arab opinion at the Arab League and beyond. Saudi officials made the case for war and, according to the Wall Street Journal’s Ellen Knickmeyer, they even asked for target lists to study, so that they could join an attack.

But the strikes never came. British Prime Minister David Cameron failed to secure enough votes to intervene. In the U.S., Obama decided to seek congressional authorization after a brief public debate turned against an attack. The Saudis, for their part, made their case loudly and in many venues, even offering to pay in full for an expanded effort to oust Assad rather than teach him a lesson. They did so with confidence that the U.S. would follow through and were subsequently humiliated by the U.S. climbing down. Settling for a Russian deal to remove Assad’s chemical weapons, while pursuing a deeply flawed peace process in Geneva and not punishing the regime in any meaningful way, has created a sense of abandonment in Riyadh.

This may sound absurd to those who hate Saudi Arabia because they think the system is morally bankrupt—but there is a moral component to Saudi foreign policy in Syria. Their support for rebels is not simply a cold calculation to cut off Iran’s right hand in the Arab world. Leaders like King Abdullah see a country under siege from outsiders, both Sunni jihadists and Iranian agents, and a brutal regime defended by Russia and China at the United Nations. They believe the only way to save Syria and stop the killing is to remove Assad by force.

Then there’s Iran. It’s widely assumed that the Saudis fear a “grand bargain” that would allow them to dominate the region. According to this reading, a comprehensive nuclear deal would really be a prelude to a regional security agreement that lessens the burden on the U.S. and gives Iran more breathing room. This fear isn’t new. It dates back to before the Shah fell. Gulf Arab leaders worry that Iran—with its larger population, stronger military and formidable nationalism—could dominate the neighborhood unless outsiders help secure the Gulf.

But why would the Saudis be unhappy with nuclear deal that satisfies the rest of the world? What they’re most alarmed by, I’m guessing, is the public outreach that creates immense pressure to reach a deal even if it’s flawed. A thaw in U.S.-Iranian relations is not out of the question for Saudi Arabia. It’s easy to forget, in a time of heightened sectarianism and bloody proxy battles, that the Saudis have an embassy in Tehran and the two sides occasionally do business in spite of mistrust.

Egypt is another point of contention. The Saudis genuinely believe they backed a popular uprising in Egypt this summer, when the democratically-elected president, Muhammad Mursi, was ousted by a military supported by millions and millions of Egyptians. The ensuing crackdown on the Muslim Brotherhood, to which Mursi belonged, has killed over one thousand people. Thousands of others are in jail. But the general who led the coup is hugely popular and could win the presidency if he ran for office today. This is good enough for Riyadh.

At the same time, the Saudis sees the growing insurgency in Sinai and Islamists resorting to terrorism as proof that violence is part of the Brotherhood’s DNA. The Saudis are quick to frame their support for Egypt’s military as a response to this threat.

In an effort to bolster the interim government, discredit the Brotherhood, and improve Egypt’s fiscal standing, the Saudis have committed $12 billion in aid along with Kuwait and the UAE. By contrast, the U.S. decided this month to strip Egypt of military aid, leaving the Saudis to scratch their head in astonishment. Such confusion could have been avoided if the U.S. acted decisively in the early days of the coup and withdrew aid immediately. But the delayed reaction has only complicated the relationship. Why do it now when the worst of the crackdown is over and terrorism is a serious threat gaining momentum?

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What other factors are driving Saudi policy today? Please comment.

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One graph says a lot–my article says the rest

The Atlantic Council just published my newest article on the strikes that are crippling Libya’s oil industry, titled “No End in Sight for Libya’s Oil Drama.” How bad is it?

Image

The Atlantic Council has produced some of the best research and analysis on Libya this year–and I’m thrilled to contribute to their MENA Source blog. I highly recommend recent reports on Libya’s General National Congress and economic prospects. Yesterday, the Council hosted an event, Libya’s Transition and the Future of US-Libyan Relations, that is now available on video and worth watching.

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Lacking coherent vision, U.S. strikes against Syria would be vain

Today’s guest author is Matthew Gilchrist (@gilchristms). He holds an M.A. in Middle East Studies from the Elliott School of International Affairs, specializing in U.S. foreign policy and security studies. He previously lived in Lebanon while studying at the American University of Beirut and worked at the news website NOW Lebanon. Gilchrist now works in Washington, DC.

Over the past week the Obama administration has built its case for what it claims could be one-time airstrikes in Syria to punish the regime of Bashar al-Assad for its alleged use of chemical weapons, which, according to U.S. estimates, killed more than 1,400 Syrian civilians on August 21. The administration says that an airstrike is necessary to preserve the integrity of the “red line” Obama drew a year ago and to protect Syrian civilians from further attacks.

If the U.S. stands passively by, Assad will use his chemical stockpiles with impunity, setting a dangerous international precedent. But, the administration adds, an American response must be neither too soft nor so strong that it results in the fall of Assad. American actions are intended neither to bring about regime change nor as a pretext for greater involvement in Syria’s civil war, we are told.

Unfortunately, airstrikes are unlikely to achieve anything that could lessen the suffering of the Syrian people or push Assad to the negotiating table. It will most certainly not stop his government’s use of conventional weaponry that has already killed tens of thousands. The strikes will only serve to assuage the Obama administration’s doubts about its own international credibility while creating greater instability and uncertainty in Lebanon, Jordan, Iraq and Israel.

Furthermore, discussion of these strikes – seemingly only  popular in the White House, a few congressional offices and the Élysée Palace – fail to take into account the views of Syrian and Arab publics, who overwhelmingly oppose another American military intervention. American military involvement will do further damage to its image in the Arab world, make a bad situation worse in Syria by exacerbating refugee flows to neighboring countries, and risk reprisal attacks by Syria, Iran, Hezbollah or their proxies that could escalate the Syrian conflict and inflame the region.

Meanwhile, American efforts to prove Syrian government culpability in the August 21 chemical attack have ignored key questions, which without U.N. Security Council approval of a military response further undermines the administration’s claim to legitimacy for any possible military action. Why, for example, would the Syrian government carry out an unprecedented chemical attack a mere 20-minute drive from the U.N. weapons inspectors’ headquarters in Damascus? With U.N. inspectors on the ground in Syria, it is fortuitous for the rebels that the attack came when it did and should raise concerns about their own involvement.

Much of the evidence cited in the unclassified U.S. assessment of the Syrian government’s use of chemical weapons released on Friday is circumstantial and relies on assumptions of prior government culpability in chemical attacks. The most vital piece of evidence the administration cites is a communications intercept “involving a senior official intimately familiar with the offensive who confirmed that chemical weapons were used by the regime on August 21 and was concerned with the U.N. inspectors obtaining evidence.” However, no transcript was provided in either English or the original Arabic, nor was it divulged whether this individual is thought to have played a role in the alleged attack. Lacking context, this “senior official” may have been merely speculating on an event to which he had no connection. With the option of military force on the table, more transparency, evidence and context are necessary for the administration’s claims to be convincing beyond a reasonable doubt.

While suspicion must fall first and foremost on the party in possession of both massive stockpiles of chemical weapons and the means to deliver them – the Syrian government – the U.S., its European allies and the U.N. have an obligation to consider alternative scenarios and investigate the possibility of rebel involvement. Contrary to the administration’s claims, it is not beyond the realm of possibility that a rebel faction or a group of defected Syrian military officers could have acquired an amount of sarin gas from among Syria’s own stockpiles or from abroad, and staged the attack to bring about a Western military intervention. Knowing that the Americans will blame Assad for the attack, and with so many dead already, might not a thousand more be justifiable if it hastens the end of the war?

Unfortunately, questions such as these are all too often dismissed and discredited by virtue of their popularity with Russia, China, and most damningly, the Syrian regime itself. The Syrian civil war has so polarized the Middle East and the international community that a critical and thorough debate no longer seems possible.

The U.S. must be careful if it chooses to pursue airstrikes against the Syrian government. If the American response is miscalculated and does greater damage to Syrian government assets than intended, the scales could tip in favor of the rebels and throw Syria into a new, bloodier stage of its civil war. The ascendant rebel forces might push deeper into Damascus, seeking to fully dislodge the regime from its capital stronghold, while Assad would quicken the pace of his unrelenting campaign against rebels and civilians alike. Hezbollah or its proxies could strike at Israel, whose own retaliation would be catastrophic for Lebanon and the region.

The Obama administration does not have the best interests of the Syrian people at heart, but rather its own vanity and sense of purpose – one not shared by the Syrian people or its Arab neighbors. Without a strategic vision for how airstrikes could bring about a  resolution to the Syrian conflict or facilitate real negotiations, the administration’s actions are either folly that will accomplish little and be forgotten, or will lead to deeper American involvement and greater suffering in Syria and the region.

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