After Sisi’s Visit: Will the Turkish and Egyptian Positions Differ in the Libyan Crisis?

Libya’s central bank has become the latest battleground in the country’s ongoing political struggle, evoking parallels with Venezuela, where deep political divisions have led to economic deterioration and financial crises.

As tensions escalate, questions emerge about whether Libya is on a similar trajectory and how this conflict could destabilize the nation’s financial system, potentially triggering long-term economic consequences.

The growing rift over control of the Central Bank of Libya is already being felt in the economy.

On August 26, most Libyan banks suspended services, coinciding with a decision by the parallel government led by Osama Hamad to halt oil production and exports indefinitely. The suspension of oil, Libya's economic lifeline, underscores the severity of the crisis.

Political Conflict

In early August, the bank’s governor, Al-Siddiq Al-Kabeer, warned of increasing threats to the safety of the bank’s employees and its operations. He raised these concerns during a meeting with U.S. envoy Richard Norland at the U.S. embassy in Tunis.

Norland emphasized the need to safeguard Libya’s Central Bank from any efforts to forcibly change its leadership, warning that such attempts could block Libya's access to international financial markets. 

Political analyst and researcher Osama Fouad notes that the conflict surrounding the Central Bank stems from disputes over the distribution of Libya's wealth.

U.S. involvement, Fouad told Al-Estiklal, suggests a desire for transparent and equitable negotiations regarding the country's financial resources.

According to Fouad, any leadership change at the bank could severely restrict Libya's access to global financial markets, an outcome that would have profound repercussions on the economy.

U.S. is interested in ensuring that the Central Bank channels funds to the eastern region controlled by Khalifa Haftar, in an attempt to maintain a power balance between the eastern and western factions of the country.

This division has been a key feature of Libya’s political landscape since the fall of Muammar Gaddafi in 2011.

The Central Bank’s role has also become a point of contention between the government and bank leadership.

In June, Prime Minister Abdul Hamid Dabaiba criticized the bank’s management, accusing it of restricting liquidity and being beyond the government’s control.

Observers fear that this prolonged conflict over the Central Bank’s management could push the country further into financial and political turmoil.

The bank’s internal divisions mirror the broader schism within Libya itself, where two rival governments—the internationally recognized Government of National Unity (GNU) based in Tripoli, and the eastern administration led by Osama Hamad—compete for control.

These divisions are not new. Libya has been plagued by fractured institutions since 2014, when two separate Central Bank governors were appointed, one in Tripoli and the other in the east.

The bank’s recent unification in August 2023, after nearly a decade of division, was heralded as a significant step forward.

However, the optimism surrounding this unification has quickly faded, as the central bank finds itself embroiled in a renewed power struggle, undermining hopes that it could serve as a model for the reunification of other state institutions.

Turkish-Egyptian Alliance?

Due to the Libyan predicament, the emerging Turkish-Egyptian alliance, formed after the restoration of diplomatic relations between the two nations, faces its first significant test in Libya.

The removal of the Libyan Central Bank’s governor presents a direct challenge to both Egyptian President Abdel Fattah al-Sisi and Turkish President Recep Tayyip Erdogan.

The new partnership between Egypt and Turkiye, forged in part to address long-standing regional differences, is now being put to the test by Libya’s escalating political turmoil.

Relations between the two nations had deteriorated following the 2011 Arab Spring and worsened after Sisi's 2013 coup against Egypt's first democratically elected president, Mohamed Morsi.

However, after three years of rapprochement, Sisi’s recent visit to Ankara, where he met with Erdogan, marked a turning point.

The leaders signed 30 agreements aimed at boosting trade to $15 billion over five years, as they sought to address both economic challenges and concerns over the Israeli War on Gaza.

Osama Fouad says that despite the diplomatic thaw, Egypt and Turkiye may not reconcile their differences over Libya, as hopes for a new era of cooperation could be premature.

Since the fall of Muammar Gaddafi in 2011, Libya has been divided between rival governments in the east and west.

Turkiye has been a key backer of the Tripoli-based Government of National Unity (GNU), sending military aid and troops in 2019 to block an offensive by eastern warlord Khalifa Haftar, who receives support from Egypt, the UAE, and Russia.

During their recent meeting, Erdogan and Sisi reportedly agreed to move beyond their discord over Libya, but the specifics of how this will be achieved remain unclear.

“The ongoing central bank crisis is now a crucial test for the alliance. The crisis began three weeks ago, when the governor of the Libyan Central Bank, Sadiq al-Kabir, was dismissed by political forces aligned with the Tripoli-based government led by Abdul Hamid Dabaiba. Al-Kabir has since fled to Turkiye, claiming he feared for his life,” Fouad said.

“At the heart of the conflict is the control of Libya’s vast oil wealth, with the Central Bank overseeing the distribution of revenues from Africa’s largest oil reserves, along with foreign exchange holdings amounting to $80 billion,” he added.

Dabaiba has accused al-Kabir of mismanaging these resources, alleging that the former governor shifted funds to Libya's eastern factions.

Al-Kabir, however, countered that the government’s 2024 budget plans would see spending exceed revenues by 37.5%, highlighting the deep financial mismanagement plaguing the country.

“As the central bank crisis unfolds, it could strain the fragile alliance between Egypt and Turkiye, testing whether their newfound cooperation can withstand the pressures of the region's ongoing conflicts,” Fouad noted.

Turkish Interests

With the eastern government pushing for al-Kabir’s ouster and international banks freezing many of the Central Bank’s foreign exchange transactions under U.S. pressure, several oil fields have been shut down, further crippling Libya’s fragile economy.

The Central Bank, one of Libya’s most powerful institutions, remains a rare pillar of stability despite intense political turmoil.

Western governments, including the U.S., have voiced opposition to al-Kabir’s removal, highlighting the bank’s critical role in maintaining financial order.

The situation underscores the high stakes involved for Libya's future, and the role it could play in shaping newly revitalized relations between Turkiye and Egypt.

In a sign of Libya’s growing importance to Turkish-Egyptian ties, Turkish intelligence chief Ibrahim Kalin made a swift visit to Tripoli following the summit between Turkish President Recep Tayyip Erdogan and Egyptian President Abdel Fattah al-Sisi.

According to the report, Kalin’s mission appears to be an effort to persuade Libyan Prime Minister Abdul Hamid Dabaiba to reinstate al-Kabir temporarily or negotiate the appointment of a new, mutually acceptable board of directors to lead the Central Bank.

Libya's current disputes are largely driven by family elites vying for control of economic resources

This changes Turkiye’s strategic calculations compared to its military intervention in 2019. The deepening financial partnerships between Turkish companies and Libyan businessmen in the east, including plans to build the world’s largest iron and steel plant in Benghazi, suggest that Ankara may be less inclined to provide unqualified military support to the Tripoli-based government moving forward.

On the other hand, the west of Libya granted Turkish forces near-total immunity in a memorandum of understanding, making any Turkish withdrawal or compromise over Dabaiba’s control of the Central Bank a significant concession. The report suggests that while Turkiye’s growing economic ties in eastern Libya may shift its approach, a complete abandonment of Tripoli remains unlikely.

The United Nations and Western ambassadors have called for a resolution to the Central Bank crisis through consensus, suggesting either a temporary reinstatement of al-Kabir or the appointment of an interim leadership.

The international community has re-entered “crisis mode” in Libya, fearing that the country’s unresolved economic and political divisions could lead to its rapid collapse.

Libya, they cautioned, risks becoming a failed state on the Mediterranean, with serious implications for migration, regional stability, and security.

Yet, despite these concerns, there is still no clear long-term plan for resolving Libya’s deep-seated divisions, and corruption among the country’s elites has continued to hollow out the state for years.