By Hany Besada and Philip Martin

The stability of Libya’s post-Qaddafi political environment now depends on a myriad of factors – not least of which is the governance and distribution of this North African country’s sizable natural resource wealth. While holding fair and free elections, restoring impartial security institutions, disarming and demobilizing rogue militias, reconstructing economic infrastructure and strengthening governance structures are of crucial importance, the country has virtually no chance of successful post-conflict reconstruction without an equitable and transparent mechanism for sharing natural resource revenue.

For decades, oil wealth has kept the monarchs and autocrats of the Middle East strong and civil society weak. Natural resource revenue allowed rulers to buy the loyalty of citizens with social spending handouts and secure the support of the armed forces by means of a lavish patronage. Moreover, due to the close linkage between the political elite and national oil industries, it is extremely difficult to ensure transparency with regard to the country’s finances.  With modern social media tools making access to information easier for the general citizenry, however, such clandestine relationships create perceptions of corruption and suppression amongst large parts of society and, more in particular, amongst marginalised communities and the economically disempowered. Over time, as the protests of the Arab Spring showed, these grievances undermine the legitimacy of the ruling regime, as individuals and groups rise up to demand their fair share.

The old resource-sharing formula used by Muammar Qaddafi to sustain his political rule is gone and a new one has yet to take shape. After toppling the Sanussi monarchy in the historically dominant eastern province of Cyrenaica, Qaddafi shifted power and resources to Tripoli, creating an east-west divide that is likely to remain a major point of friction. As the producers of most of Libya’s oil wealth, the residents of Cyrenaica – including the National Transitional Council stronghold of Benghazi – will be tempted to restore their historic primacy. In the lawless and long-marginalised southern regions, tribal groups with ties to Libya’s neighbors, or with tribal affiliations to Qadaffi’s former regime, will expect greater access to the country’s resource wealth as the price of cooperation with the new government in Tripoli. Finding the right balance among these competing interests, without succumbing to the temptation of re-centralizing power, will be an immense challenge for whatever governing coalition emerges from Libya’s chaotic political scene.

What steps can be taken to mitigate the risk of violent resource competition amongst Libya’s tribal factions, or a slide back into authoritarian rule by one coalition? Firstly, foreign importers of Libyan oil should push for transparency in Libya’s natural resource sector. The United States took tentative steps in this direction with a 2010 financial reform law, which forms part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and which compels companies, registered with the USA Securities and Exchange Commission, to report on their transactions in oil, gas and mineral resources with foreign governments on an annual basis. Discussions are underway in several European countries with regard to passing similar legislation. Other oil-importing countries could follow suit, placing real pressure on Libya’s government to disclose information pertaining to revenue.

Secondly, voluntary codes, like the Extractive Industries Transparency Initiative, which is a mechanism requiring resource-rich countries to publicly disclose their income, and the Natural Resources Charter, which constitutes a set of principles drafted by a group of scholars to assist governments and citizens in using their resource wealth in socially beneficial ways, could be adopted by the new Libyan government, as a gesture of goodwill towards their citizens. While lacking any binding legal mechanism, these schemes would be politically popular and gain badly needed domestic legitimacy for Libya’s nascent democratic transition.

Observers may doubt whether such voluntary pledges are likely to have much impact on a country lacking the rule of law; a strong and independent media; and an established civil society to exert pressure for accountability. Likewise, it may seem difficult to fathom that foreign oil-importing countries will go to any great lengths to assure the transparency of their transactions. Certainly, the record of some countries with large resource interests in Libya – particularly, but not exclusively, BRICS – is not promising. As elsewhere in Africa and the Middle East, these countries have shown little hesitation to broker resource-backed deals with oil-rich regimes with no questions asked. Consider, for example, the opaque ties between Angola’s corrupt ruling elite and the Chinese state-run oil conglomerates.

Still, some of these clients now find themselves on the outside looking in. Libya’s victorious rebels who, up to this point, spoke reassuringly about the need for good governance, have warned that those countries who fail to take an assertive stance against Qaddafi may lose out on lucrative oil contracts. This is reflected in the words of a spokesperson for a rebel-controlled oil firm, the Arabian Gulf Oil Company: “We don’t have a problem with western countries, like the Italians, the French and the UK. But we may have some political issues with Russia, China and Brazil.” This is potentially good news for a Libyan democracy, but only if the end result is a strong commitment to transparency and accountability with regard to natural resource revenue, coupled with an equitable plans to redistribute this wealth amongst the people.

Hany Besada, Program Head and Senior Researcher at the North-South Institute (NSI) and Philip Martin, Junior Trade Policy Officer, Department of Foreign Affairs and International Trade Canada. Their views do not necessarily represent the views of the organizations they work for.