TRIPOLI/BENGHAZI, Libya Libya's Prime Minister Ali Zeidan said on Wednesday his government will be unable to pay public salaries and may have to seek loans if armed militias blockading oilfields and ports continue to choke off crude shipments.
Zeidan's warning and renewed armed clashes, including an attack on a centuries-old shrine near Tripoli, have added to a growing sense of chaos in the OPEC producer two years after the NATO-backed ouster of Muammar Gaddafi.
Western powers worry the North African state may slide into anarchy as Zeidan's government struggles to rein in militias who helped topple Gaddafi but have kept their weapons and still control parts of the vast country.
Militias, tribesman and ethnic minorities have seized oilfields and ports to make demands, drying up the main cashflow for the budget, much of which is spent on state subsidies to stave off popular discontent or to buy the loyalty of the militias.
"We are facing a financial crisis," Zeidan told reporters, adding that the government might be forced to borrow. "Oil revenues are down to 20 percent."
He did not give further details. Libya had been exporting more than 1 million barrels of oil a day until summer, when the protests and strikes escalated, and output is now down to a fraction of that.
A government deadline to end the oil strikes expired last week but Zeidan only repeated that the authorities would take unspecified "measures". He declined to elaborate.
Libya might also start facing power cuts as the oil strikes hamper gas production at several fields, Electricity Minister Ali Muhairig said.
Hours before Zeidan spoke, new clashes broke out between army special forces and Islamists in Benghazi, the largest city in the oil-rich east.
Fighting on Monday between the army and members of militant group Ansar al-Sharia in Benghazi left at least nine dead before the Islamists retreated from their main base.
Gun battles erupted in parts of the port city in the early hours of Wednesday when members of Ansar al-Sharia threw a grenade at a patrol of special forces, a security official said. He later said it was not clear who was behind the attack.
Three soldiers were also killed in Benghazi in what city officials described as assassinations. The security situation in Libya's second-biggest city has sharply deteriorated in the past few months. Islamists run their own checkpoints, and assassinations and bombings occur daily.
In Tajoura outside the capital Tripoli, unknown attackers blew up part of a 16th century shrine, the mausoleum of an Ottoman ruler, witnesses said.
Western powers have promised more aid to the army and police to militants who control much of the vast desert country.
But popular anger is also growing against the militiamen and former fighters, and Zeidan's fragile government hopes to use that discontent to wrest back control from armed groups.
Hoping to co-opt former fighters, the government has hired militia groups to provide security. But they remain loyal to their commanders or tribes and often clash in disputes over territory or personal feuds.
(Additional reporting by Ghaith Shennib; Writing by Ulf Laessing; Editing by Patrick Markey and Mark Trevelyan)
Our top photos from the last 24 hours.