Libyan authorities have said they will investigate allegations of wholesale mismanagement in the country’s National Oil Corporation, with officials telling the Guardian rampant smuggling is helping to fuel the civil war in Sudan. Mohamed al-Menfi, the chair of the presidential council, will launch an inquiry this week, t he scope of which is likely to also cover the widespread practice of fuel smuggling and its key beneficiaries. The allegations, ranging from profligacy to corruption, are not only an internal Libyan matter. Officials said widespread smuggling was helping to provide fuel to the paramilitary Rapid Support Forces fighting in Sudan, a point highlighted in a recent report submitted to the UN security council. Some of the money may also be going indirectly to the Russia-backed Wagner Group, now rebranded as the Africa Corps. Although Libya is an oil-rich country it imports most of its fuel, since its small domestic refineries are not producing enough to meet domestic needs. Instead of subsidising poorer Libyans directly, the government in Tripoli sells imported fuel at heavily subsidised prices. Gasoline often sells at a discount of 90% to market price. Fuel oils, which comprise heating oil, diesel oil and heavy fuel, are on average sold at a price 70% cheaper than it costs the government to buy. Officials say as much as 40% of imported fuel – worth billions – is then re-exported and smuggled out of the country at a profit. Libya has been governed by two administrations in the east and west of the country since Muammar Gaddafi was toppled in a Nato-backed uprising in 2011. Multiple efforts by UN officials to stage nationwide elections and create a unified government have failed. The latest power struggle burst into the open when the governor of Libya’s central bank, Sadiq al-Kabir, wrote an open letter to the Tripoli-based Libyan prime minister, Abdel Hamid Dabaiba, about unsustainable public spending. Since then, the exchange of fire between the two men about the state of the Libyan finances has threatened to blow open allegations of state-sponsored corruption. The bank’s governor, adopting the role of the guardian of the nation’s public finances, pointed out that nearly 2 million people were on the public sector payroll, and state sector salaries alone represented 60% of public spending. Subsidies, especially fuel subsidies, had risen from 20.8bn dinars (£3.4bn) in 2021 to 61bn dinars in 2022. He said the figures revealed “the existence of an imbalance, distortion, and mismanagement in fuel subsidies” and that he had received no convincing answer for this rise. Kabir asked: “How is it reasonable to use the state’s reserves to buy a litre of fuel for a dollar and re-sell it for 3 cents so that smuggling gangs can benefit from it?” Dabaiba hit back, saying there was no economic crisis and rejecting calls for the imposition of a 27% tax on foreign exchange deals designed to lower the value of the dinar. He said the public finances were in strong shape, a view rejected by Kabir, who said the country was facing a major budget deficit. Libya’s currency has already depreciated by 78% against the dollar since 2016. One internal NOC document dated September 2023 states the inflated cost of subsidies has become almost half the amount of energy revenues. Sources say the majority of the imported fuel comes from Russia, via third parties in Turkey, and is illicitly sold on to Europe at a large profit by smugglers, leaving ordinary Libyans with often hours-long queues for petrol. One Libyan official said: “The Wagner Group is shepherding this fuel across the border into Sudan. If we close the border between Libya and Sudan for fuel, the war in Sudan will end. It is not a high technology war like in Ukraine. It is an old war involving 4x4 cars, and without fuel it will stop.”