Home | Features | March 10 | Sanctions for Libya: Libya’s oil industry and Western business interests

Sanctions for Libya: Libya’s oil industry and Western business interests


Since the country declared its independence from Italy on Christmas Eve, 1951, Libya’s history has been difficult to trace. Through years of fluctuation, it has above all been marked by a severe tension with the West.

Prior to the Muammar al-Gaddafi era, which began in 1969, when al-Gaddafi staged a bloodless coup that overthrew King Idris, and carries out today, it seemed as though a pro-Western stance was winning out. But al-Gaddafi reconstructed Libyan political, economic and military systems to produce a country officially called the Great Socialist People’s Libyan Arab Jamahiriya. Chief among the tensions are al-Gaddafi’s activist policies in the Middle East and Africa, including his financial and military support for a number of paramilitary and rebel groups.

Over the past year, it has been said that Libya was entering a phase of reconciliation with its one-time Western adversaries. In August 2008, Italian Prime Minister Silvio Berlusconi signed an agreement to pay Libya $5 billion over 25 years to quell the damage inflicted during the colonial era. A month later, former U.S. Secretary of State Condoleezza Rice met with al-Gaddafi and announced that U.S.-Libya relations had entered a new phase.

However, Libya’s oil industry has been high on the world news agenda recently. Claims have surfaced that implicate Western business interests in the Libyan petroleum industry as a factor in the early release of Lockerbie Bombing culprit Abdel Baset al-Megrahi (officially released by the Scottish parliament due to a terminal illness and rapidly declining health).

Libya has the largest proven oil reserves on the African continent and the country has held four rounds of bidding for investors since UN and U.S. sanctions were lifted earlier this decade. But with the release of al-Megrahi and the tumultuous political environment, have international oil companies been put off?

Britain’s Justice Minister Jack Straw recently made comments that did not rule out, nor show remorse for, these proposed underlying business interests. U.K. government letters leaked from Whitehall cite British foreign relations and business interests to be behind the release of Megrahi, and news agencies have also pointed the finger at a BP deal worth over £500 million, ratified just six weeks after this latest turn of events.

By examining the origins, development and future of Western relations with the Libyan oil industry in light of this latest event, it does not appear that an easy reconciliation is imminently in store for Libya and their Western counterparts. All that can be done is to evaluate conflicting claims, reports and evidence, examine the historical relations between Western countries and the Libyan oil industry, and identify the potential for a positive outcome to this sensitive subject.

Prior to the leadership of al-Gaddafi, Libya maintained a definitively pro-Western stance. The government was in close alliance with the United Kingdom and the United States. Both countries maintained military base rights in Libya, supported the United Nations resolution in 1951 to grant Libyan independence, and subsequently raised their missions to embassy level, exchanging ambassadors. Libya also forged close ties with France, Italy and Greece, and established full diplomatic relations with the Soviet Union in 1955. And even though the Kingdom was noted for its close association with the West, Libya appeared to steer a conservative course at home.

Since 1969, it has been al-Gaddafi that has determined Libya’s foreign policy, which have included Arab unity, the elimination of Israel (and thus support for Palestinians), the advancement of Islam, influence in the Middle East and Africa, support for a range of revolutionary causes, and the elimination of “outside,” particularly Western, influence. Al-Gaddafi has closed British and American bases on Libyan territory and partially nationalized all foreign commercial interests, including oil.

In the 1970s, export controls on military equipment were imposed, while al-Gaddafi played a key role in promoting the use of oil embargoes as a political weapon to challenge the West to end its support for Israel. He rejected both Soviet communism and Western capitalism, claiming he was charting a middle course for his government. Libya supported wars at home, as well. Al-Gaddafi sent troops to aid Ugandan president Idi Amin in the Uganda-Tanzania War and was one of the main supporters of the Polisario Front in the former Spanish Sahara, a nationalist group dedicated to ending Spanish colonialism in the region. After a mob attacked and set fire to the U.S. embassy in Tripoli in December 1979, the U.S. government declared Libya a “state sponsor of terrorism.”

In March 1982, among increasingly undiplomatic behaviour, the U.S. government prohibited imports of Libyan crude oil into the United States and expanded the controls on good of American origin intended for export to Libya. Additional economic sanctions were implemented in January 1986, including a total ban on direct import and export trade, commercial contracts, and travel-related activities.

Four months later, two American servicemen were killed in a Berlin discotheque bombing that also injured 229 people. Libyan complicity was discovered, and the U.S. responded by launching an aerial bombing attack against targets near Tripoli and Benghazi. In November of 2001, a German court found four persons, including a former employee of the Libyan embassy in East Berlin, guilty in connection with the bombing.

Meanwhile, the United Kingdom had severed its diplomatic relations with Libya after the killing of British policewoman Yvonne Fletcher outside the Libyan embassy in London. Ties were only re-established in 1999, when Libya paid compensation. The British embassy was reopened in Tripoli, and Ambassador Sir Richard Dalton was appointed after a 17-year break in diplomatic relations.

And then the Lockerbie incident happened, imploding any hopes for a renewed diplomatic partnership. Pan Am Flight 103 was the third daily scheduled transatlantic flight on Wednesday, 21 December, 1988, flying from London’s Heathrow Airport to New York’s John F. Kennedy International Airport. A bomb destroyed the aircraft, killing all 243 passengers and 16 crewmembers. Eleven people in Lockerbie, Scotland, were also killed as large sections of the plane fell in and around the town.

In November 1991, two Libyan intelligence agents, Abdel Basset Ali al-Megrahi and Lamin Khalifah Fhimah, were charged with the Lockerbie Bombing, as it became known in the international media. Libya refused to extradite the two accused to the U.S. or to Scotland. As a result, United Nations Security Council Resolution 748 was approved on March 31, 1992, requiring Libya to surrender the suspects, cooperate with the investigation, pay compensation to the victims’ families, and cease all support of terrorist activities. The UN imposed further sanctions in November 1993 with Resolution 883, a limited assets freeze, and an embargo on selected oil equipment.

The Libyan government eventually surrendered the two suspects in 1999 for trial at the Scottish Court in the Netherlands, and UN sanctions were suspended. At the end of the Lockerbie trail, on January 21, 2001, al-Megrahi was found guilty and sentenced to 27 years in prison. Fhimah was found not guilty and was freed to return to Libya. In 2003, Libya wrote to the UN Security Council, admitting “responsibility for the actions of its officials” in relation to the Lockerbie bombing, renouncing terrorism and agreeing to pay compensation to the relatives of the 270 victims.

In June 2007, the Scottish Criminal Cases Review Commission decided that there may have been a miscarriage of justice and referred al-Megrahi’s case back to the Court of Criminal Appeal in Edinburgh for a second appeal. Expected to last for a year, the appeal began in April 2009, and was adjourned in May 2009. Having been diagnosed with terminal prostate cancer, al-Megrahi dropped the appeal and on August 20, 2009, was granted compassionate release from jail and expatriated to Libya. Though the release was granted based on the fact that the prisoner was said to be months away from death, al-Megrahi has now been released from the intensive care unit.

In an interview with the Wall Street Journal on September 24, 2009, the day after he addressed the UN General Assembly in New York, Colonel Gaddafi said, “As a case...I would say it’s come to an end. Legally, politically, financially, it is all over.”

Since 1994, there have been no credible reports of Libyan involvement in terrorism, and the country has been taking significant steps to mend its international image. In 1996, the Iran and Libya Sanctions Act (ISLA) was enacted, seeking to penalize non-U.S. companies who invest more than $40 million in Libya’s oil and gasoline sector in any year. ISLA was renewed in 2001, and the investment cap was lowered to $20 million.

Following the dissolution of the Warsaw Pact and the Soviet Union, Libya concentrated on expanding ties with Third World countries and increasing its commercial links with Europe and East Asia. In 1998, al-Gaddafi announced that he was turning his back on pan-Arab ideas, one of the fundamental tenets of his philosophy. Instead, Libya pursued closer bilateral ties within Africa, developing relations with the Democratic Republic of Congo, Sudan, Somalia, Eritrea and Ethiopia. Libya has also sought to expand its influence with financial donations, ranging from aid to impoverished neighbours in Niger to oil subsidies in Zimbabwe. Al-Gaddafi has even proposed a borderless “United States of Africa” to transform the continent into a single nation-state ruled by a single government. This plan has been moderately well received, although more powerful would-be participants, such as Nigeria and South Africa, are sceptical.

When 2003 rolled around, Libya began to make policy changes that showed an open intention of pursuing a Western-Libyan détente. The Libyan government announced its decision to abandon its weapons of mass destruction (WMD) programs and pay almost $3 billion dollars in compensation to the families of Pan Am Flight 103. Over the last six years, the country has restored normal diplomatic ties with the European Union and the United States, and has even coined the catchphrase, “The Libya Model,” as an example intended to show the world what can be achieved through negotiation rather than force when there is goodwill on both sides.

One year ago, Libya paid $1.5 billion through donations from private businesses to a fund that would be used to compensate both U.S. victims of the 1988 bombing of Pan Am Flight 103 and the 1986 bombing of the Berlin discotheque. In addition, Libyan victims of the U.S. air strikes that followed the Berlin attack will also be compensated with $300 million from the fund.

A month later, FCO minister Bill Rammell signed five agreements with Libya. Rammell said, “I will today sign four bilateral agreements with my Libyan counterpart, Abdulatti al-Obidi, which will strengthen our judicial ties, as agreed during Tony Blair’s visit to Libya in May last year. In addition, we are signing today a Double Taxation Convention, which will bring benefits to British business in Libya and Libyan investors in the U.K. We are also in the final stages of negotiating an agreement to protect and promote investment.”

Rammell went on to state that relations between the U.K. and Libya had made significant improvements following Libya’s voluntary renunciation of WMDs. “Today we are partners in the UN Security Council,” he continued. “We also wish to assist Libya to establish closer relations with the European Union, to continue and strengthen the reintegration of Libya within the international community.”

Revisiting these promises today stirs up a significant concern. In January 2008, Libya ratified a $900 million (£551 million) oil deal with BP. At the same time, a prisoner transfer agreement (PTA) was signed, effectively releasing al-Megrahi due to declining health. Mr Straw was interviewed by The Daily Telegraph in September, and said he was unapologetic about including al-Megrahi in the agreement, citing the oil deal signed with BP and Libya.

This statement directly contradicts Gordon Brown’s earlier insistence that oil deals were not a factor in the prisoner’s release. Accusations directed at Prime Minister Brown include putting Britain’s trade interests before justice for the victims of the Lockerbie bombing. Public outcry stemming from these accusations has forced Brown to say, “There was no conspiracy, no cover-up, no double dealing, no deal on oil, no attempt to instruct Scottish ministers, no private assurances.”

Mr. Straw also admitted that Prime Minister Brown had nothing to do with his change of heart over the PTA, adding, “I certainly didn’t talk to the PM. There is no paper trail to suggest he was involved at all.” Mr. Straw also admitted that Britain’s trade interests were a crucial factor 2007, when he was considering in whether the bomber should be included in a PTA with Libya. “Yes, [it was] a very big part of that,” said Mr. Straw in the interview. “I’m unapologetic about that…Libya was a rogue state. We wanted to bring it back into the fold. And yes, that included trade because trade is an essential part of it and subsequently there was the BP deal.”

What makes Libyan oil so valuable that the government has allegedly intervened in the life sentence of a convicted terrorist? As al-Megrahi surges into the headlines, so does the case for Libyan oil. It appears that the drive is geo-political, a circumstance of national security coupled with the scarcity of affordable energy.

According to Margareta Pagano, a columnist at TheFirstPost.co.uk, “Most of the West’s oil comes from the Middle East, while much of the gas comes from Russia, both fragile and sensitive territories.”

This is perhaps the reason bringing Libya into the equation was a crucial act by the West. After 20 years of being cut off from the U.K. and the U.S. because of sanctions imposed in the 1980s, Libya has finally returned to the fold. Only time will tell what the future holds, for al-Megrahi, for Libyan oil reserves and for oil companies around the world.

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