By Aidan Lewis
CAIRO (Reuters) - His assault on Libya's capital has collapsed. Foreign powers have tried to sideline him. But military commander Khalifa Haftar still sits astride oil terminals, with enough fire power and political sway to thwart any plans for peace.
Having failed in his bid for national rule, Haftar, 76, is now severely diminished. His troops have been driven out of western Libya, while in his eastern stronghold foreign powers that backed him are making overtures to rivals.
But his role in partially lifting an oil blockade over the past week shows that he remains a linchpin in eastern Libya, where he has built up a security apparatus over the past six years.
Foreign countries are now promoting talks to push warring factions towards a unity government. But diplomats say Haftar's role bedevils negotiations, as it has done for years.
"That's the big missing piece of the puzzle – what to do with Haftar and how to engage him," said one Western diplomat.
Libya has been without strong central rule since Muammar Gaddafi was toppled in 2011, and rival camps have set up parallel administrations based in the east and west since 2014. Haftar, a Gaddafi-era military commander who spent two decades in the United States, gradually took control of the east.
After gaining support from the United Arab Emirates, Egypt, Russia and France, he launched an assault to capture Tripoli last year.
But the advance collapsed in June this year after his enemy Turkey reinforced the Tripoli-based Government of National Accord (GNA). Haftar's Libyan National Army (LNA) withdrew to a front line running south from the city of Sirte, in the centre of Libya's Mediterranean coastline.
Both of Libya's rival administrations are funded by oil exports, and both have been crippled since Haftar's LNA and its allies imposed a blockade that shut the main eastern oil terminals eight months ago. Since Sept. 19, oil has gradually resumed flowing, demonstrating Haftar's lasting relevance.
But both the oil restart and the halt to fighting are on shaky ground. Haftar said the blockade would initially be lifted for just one month. His deal with a deputy prime minister of the Tripoli government provoked a backlash in western Libya, where many fear it will give the LNA more control over revenues.
The military truce, meanwhile, has yet to be converted into a formal ceasefire, and is holding partly because of the risks of a regional conflagration, with Turkey looking to consolidate gains and Haftar's foreign backers determined to contain it.
Publicly, the LNA says it is committed to a unilateral ceasefire it announced in June, but won't withdraw from Sirte.
"In the presence of Syrian and Turkish mercenaries and threats of an attack on Sirte, of course the Libyan army won't leave," said Khaled Al-Mahjoub, an LNA spokesman.
Western countries have proposed a demilitarised zone around Sirte. The LNA's willingness to accept that could depend on decisions by foreign backers and Russian military contractors deployed alongside it, analysts say.
Since fighting eased in June, internal divisions have emerged on both sides, with protesters in both the east and west demonstrating against corruption and failing public services.
In Tripoli, a dispute burst into the open within the GNA between the prime minister, Fayez al-Sarraj, and the interior minister, Fathi Bashagha, both key contacts for the government's Turkish backers. Sarraj says he plans to step down next month, but manoeuvring by factions that have gained power under his watch makes it tricky to find a successor.
In the east, international powers looking beyond Haftar have resurrected Aguila Saleh, the head of a rump parliament who was previously sanctioned by the EU and United States. In Sirte, the LNA's control has stirred resistance along tribal lines, prompting Haftar's forces to make arrests.
But Haftar retains military and financial power, and may use it to try to reassert himself politically, said Mohamed Eljarh, an expert on politics in the east.
"I think Haftar is not happy, this is why I think there is the possibility of him trying to do what he does best – sabotage these attempts at political talk through military action," he said.
U.N.-led talks, running in awkward parallel to talks between Turkey and Russia as well as talks in Morocco this month between members of rival Libyan parliaments, aim to replace the GNA and plan a roadmap for elections.
Some Western states want Haftar confined to military talks. But France is still pushing for him to have a political role. One French diplomat said Paris was trying to appear less pro-Haftar and work with European partners to counter Turkey. Another said Haftar was crucial to a political solution.
There are no signs the UAE, Haftar's most committed backer, is withdrawing support, two Western diplomats said.
"Sure they're being slightly tougher with him," said one. "But the fact is that nobody is reducing support for the LNA and nobody is genuinely turning the screw on Haftar."
(Additional reporting by Ayman al-Warfalli, Ayman al-Sahli and John Irish)