Joanna Walters
An unseemly race has begun: a stampede to resume trade with Libya, a political pariah that just happens to be swimming in oil. It all depends on whether the trial of the Lockerbie suspects in the Netherlands throws up anything about government involvement in the deed- and in a host of other old scores.
But with the suspension of United Nations trade sanctions against this Islamic socialist desert state last week, companies across Europe are queuing up outside Colonel Moammar Gadaffi’s tent flap, eager to cash in.
There are two incentives. First is the lure of trading with a country that has more oil than it can handle with its antiquated equipment. The second is the fact that the United States has not yet given up its unilateral sanctions and therefore European companies have first pick of the trading opportunities.
Italy has remained Libya’s biggest oil customer. Last week Italy sent its foreign minister to visit Libya – the first government-level contact with the European Union since UN sanctions were imposed in 1992. Libya has no rail network but plans a 2 178km coastal line that could generate contracts worth $4-billion.
Not far behind Italy is France, whose own exploration industry has been straining at the leash in its eagerness to do business inside the country.
British oil exploration firm Lasmo is preparing to invest at least 600-million to exploit the Elephant oil field in the south of Libya, which it played a part in discovering two years ago.
Oil revenues account for around a quarter of Libya’s gross domestic product and 95% of its $10-billion annual exports. Although Libya has not been in total economic isolation, its heavily restricted trade relationships, the freezing of its overseas assets and the fact it was ostracised politically has stunted its economic and social development. About 95% of Libya is desert and its 4,8-million-strong population is relatively scattered.
The discovery of oil in 1951 transformed Libya from the world’s poorest nation into the country with the highest living standards in Africa, according to the World Bank. There are predicted to be substantial oil fields waiting to be discovered and Libya is keen to engage foreign technology and know-how in its economy once more.
Libya has around 3% of the world’s known oil reserves. At 30-billion barrels these are dwarfed by Saudi Arabia’s 153-billion barrels and are smaller than those of Iran, Iraq, Kuwait, Venezuela, Russia and Mexico. But it is on a par with the US and towers over the United Kingdom now that North Sea reserves have dwindled to a mere 4,5-billion barrels.
Ironically, Libya’s political situation is considered stable for investment purposes. Gadaffi has exerted power ruthlessly since, at the age of 28, he led senior army officers who ousted the monarchy in 1969.
Tony Alves, oil analyst at Investec Henderson Crossthwaite, said there is potential for UK oil companies in Libya – but that smaller firms such as Lasmo might be more attracted than the majors because Libya is still small by comparison with its Opec (Organisation of Petroleum Exporting Countries) neighbours.
It also imposes a tough fiscal regime on inward investors, skimming off chunks of profit so that return on capital for foreign firms is restricted. Libya also has a poor record in paying its creditors on time.
The early Seventies saw the start of Gadaffi’s “cultural revolution”, characterised by government based on a brand of socialist Islamic fundamentalism, the suppression of dissidents and the rejection of both Western capitalism and Soviet communism.
It was an order to “liquidate enemies of the Islamic revolution”, ostensibly in the shape of Libyan exiles, that led to a wave of bomb attacks in the UK in the early Eighties.
The escalation of international violence and tension rose to a hideous crescendo when the Pan Am plane exploded on December 1988. Two employees of Libyan Arab Airlines were accused of the bombing and it is their trial in the Netherlands all these years later that has allowed Libya to put its foot back on the world stage.
Meanwhile, if the UN has suspended sanctions that is good enough for businessmen, who are already punching the potential oil dollars into their calculators.