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Posted : 2011-09-15 17:08
Updated : 2011-09-15 17:08

Oil and Libya


By Behzad Shahandeh

The correlation between oil and Libya is a disputed issue. The principal customers of Libyan oil have always been European states. Up until the uprising, 63 percent of Libyan oil was destined for the four countries of France, Italy, Germany and Spain.

Moreover, Russia and China pursued oil and gas dealings with Tripoli, while at the same time eyeing its growing military market. The race for Libya’s wealth had been simmering for some time, with Tripoli being given red carpet treatment in European capitals to lure it into lucrative energy and military deals. To their dissatisfaction, military purchases were granted to the Russians. This is not to say that Russia always had a smooth ride with Libya, as it has sometimes been shunned too.

Russia and lately China have been active in the Libyan oil sector and been able to negotiate attractive deals with Libya. In 2007, Gazprom, Russia’s biggest company and the world’s largest extractor of natural gas, sidetracked Italy’s ENI in winning the bid to explore and extract oil in the Libyan Desert, thus moving into the turf that was dominated by Italy.

The latter was previously the most prominent foreign country in the extraction and production of oil and was responsible for one fourth of all energy activities in Libya. Interestingly enough, in 2007, Rome won a $28-billion oil deal with Tripoli, which guaranteed its continued presence in the Libyan market up until 2042, and one year later, Italy concluded a treaty of friendship with Libya! What then caused Italy to be among the first countries in NATO to embark on a military offensive against Libya?

Then again, why did France, which had lately been warmly courting Tripoli, become the first European nation to oppose it and to recognize the rebellion so abruptly? What really happened and why did the stance against Tripoli unfold in much shorter time than against Tunis? Did the Russian and Chinese equation play a role in the rush against Tripoli? These questions are likely to give food for thought to historians for quite a while.

Some believe that with Tripoli catering to the demands of the West to forego its nuclear drive and the radical policies it had pursued, Libya’s markets began to be penetrated especially by the Russians and Chinese, who positioned themselves to secure deals to the detriment of, for example, the Italians, who were facing practically no competition prior to the opening-up of the Libyan markets in 2003.

The evacuation of as many as 12,000 Chinese, about one-third of all those working in Libya, many of them in the oil sector, bears witness to the growth of China’s presence in less than a decade. Seventy-five Chinese companies have operations in Libya including CNPC, China’s energy giant. In 2010, China’s trade with Libya was worth $6.6 billion, a rise of 27 percent from 2009.

The race for explorations of Libyan oil had moved into a new arena of fierce competition among various countries, so much so that Tripoli was able to dictate nearly all its conditions and to accumulate colossal amounts of foreign exchange in its coffers. Some go as far as saying that 90 percent of the value of the deals then made ended up in the hands of Tripoli. This is evidenced by the huge amounts of cash that had been stashed away abroad, some of which are still unaccounted for.

It is worth noting that nearly all the oil facilities, whether producing or refining, are situated in the eastern part of the country where the battle for Libya raged, and some are of the opinion that it will again be a place of turmoil if the new Libyan government fails to steer away from the previous course!

At this point, it must be remembered that Libya, with just over 3 percent of the world’s proven oil reserves, ranks 10th worldwide for such reserves, and 17th for oil production volume, which also makes it the second-largest African oil producer after Nigeria. Added to the reserve clout are the particularly high quality of its oil and the extremely low cost of its extraction, i.e. a mere $1 per barrel, which is virtually unmatched elsewhere.

Such a jewel is so precious that it can hardly be ignored by energy-hungry countries, and the question that remains is whether putting an end to over 40 years of misrule will result in a state where sovereignty, territorial integrity and independence will be safeguarded from insatiable ambitions to let the Libyan people benefit from their wealth and to prioritize development and prosperity on the national agenda.

The writer teaches at the Graduate School of International Area Studies at Hankuk University of Foreign Studies in Seoul. His latest book is “The Middle East Embracing Change” (ChangMoon Publishers, 2010). He can be reached at shahandeh@hufs.ac.kr.

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