Talks last week in London between Libya, the United States of America and the UK seemed have paved the way for the complete lifting of UN sanctions against Libya if the country will accept full responsibility for the Lockerbie airliner bombing. In 1988 the bombing of Pan Am flight 103 over Lockerbie in Scotland killed 270 people. The sanctions were imposed against Libya because the terrorists were assumed to be sponsored by the country.
The news is remarkable as Libya is a major oil exporter, particularly to Europe. Especially West European companies have been eager to resume upstream activities in the country. Oil export revenues account for almost 95 percent of Libya's hard currency earnings. They were severely hurt by the imposition of United Nation and US sanctions. But the country profited from high oil prices since 1999 and oil export revenues has been steadily increasing and reached $10.8 billion in 2002. For 2003 revenues of $12.9 billion are forecasted. This is remarkable as they were only $6 billion in 1998. Today, Libya possesses 12 oil fields with reserves of 1 billion barrels or more and 2 others with estimated reserves of 500 million to 1 billion barrels. Most of the exploration is located onshore. Despite an active oil industry, according to oil mayors, a large oil and gas potential in the country is still untapped. Only around 25 percent of the area is explored. The lack of investment is due to the sanctions but also the country has to be blamed as Libya has imposed stringent fiscal terms on foreign companies. Once a better financial framework will be in place, Libya will become very attractive, due to low recovery costs and its proximity to Europe. The country has also large unexplored gas reserves which are estimated to mount to 46.4 Tcf. Libyan experts however claim that number is possibly closer to 50 to 70 Tcf.
American oil companies withdrew from the country but European majors have been very active recently, despite US sanctions. The 1996 Iran-Libya Sanctions Act (Ilsa) gives the US president power to penalize foreign firms that invest more than $20 million a year in the country?s energy sectors. Nevertheless, TotalFinaElf, Repsol YPF Norsk Hydro and Eni have been all engrossed with development and exploration projects. But it was only the case of the German utility company RWE which brought the sanctions issue back to public interest. At the beginning of August US government officials threatened the company that its US operations could face sanctions if it continues an exploration project in Libya. RWE was awarded a five year contract in Libya to drill for gas and oil. The company is expected to invest $64 million. It later however announced that the volume of the contract would be well below $20 million.
This issues could however be solved before there will be any repercussions against RWE. If Libya will take full responsibility for the Lockerbie bombing and pay compensation to the victims, UN sanctions will be lifted. Under the agreement, the country would pay $10 million to each of the victims; the total sum would amount to $2.7 billion. After the sanction are lifted, Libya would have greater scope for importing vital spare parts, required by its oil industry, and boosting oil production which is currently 1.4 million barrel per day.
The abolishment of UN sanction does not automatically mean the same for the US sanctions. It could however pave the way for a political process that leads to this result. It can be assumed that there will be a dispute between the State Department and the hawks in the Bush administration. Also in the US parliament, there are a lot of opponents to the idea of lifting sanctions. They claim that sanctions help chocking off funding for terrorism and the development of weapons of mass destruction. Libya should be deprived of oil and gas revenues which are used to support terrorism. Ex President Bill Clinton said in 1996 when the bill was signed that you simply cannot do business with people by day who are trying to kill your people at night. The argument that the whole sanction regime does not work properly would be dismissed by the objection that weak sanctions are still better than no measures at all.
However, the changes to abolish at least part of the sanction do not look that bad at all. The American oil industry which has certain influence in Washington has long been complaining that they lose business in Libya because they are barred from the country and their European counterparts are not. The White House should have an ear for the complaints as President George Bush, Vice President Dick Cheney and Security Advisor Condoleezza Rice have all spent years in the oil industry themselves.
Author: Andreas Wild
