Geopolemics.com :: Saudi Arabia

Countries: Saudi Arabia
Posted on Thursday, May 01, 2008 - 01:24 PM
	An Old Friend Returns Russian president Vladimir Putin traveled to Libya in April. It was the first visit by a Russian president to the North African country and it was an important one. From the Russian diplomatic perspective, the visit heralded a resumption of high level relations between Russia and the Arab world, after the weakened ties of the post Soviet era. As other European leaders have also done, Putin secured important oil and gas deals for Russian oil and natural gas companies to diversify sources; Putin also promoted Russian technology to secure contracts in rebuilding and expanding Libya’s infrastructure, including a firm commitment to build a railway. In return, Libya obtained a formal cancellation of its debt of over USD 4.5 billion inherited by Russia from the Soviet Union, which would be paid back by Libyan purchases of Russian military equipment. Russian sources hint that Putin’s sales pitch included a USD 2.5 billion arms deal including antiaircraft systems, fighter jets, helicopters, submarines, and warships. The deal may also be linked to some of the energy concessions that Putin was able to secure, as he did with an arms-for-debt exchange with Algeria, in which Russia also gained key energy concessions. Russia is interested in resuming a primary role in the area for strategic and business purposes and is attempting to restore a relationship pattern that existed between several Arab countries and the Soviet Union. Coincidentally, Putin arrived a week after Ukrainian President Viktor Yushchenko. Ukraine announced on April 14 that its state energy firm, Naftohaz Ukrayiny, had won an agreement to start pumping Libyan oil. Presumably, Colonel Qadhafi shall reciprocate and visit Moscow later in the year. Having signed a ‘cooperation and friendship’ agreement with Moscow, Libya may also prove to be more receptive to Russian proposals of forming an OPEC style natural gas cartel, which from Russia’s point of view is the really BIG ONE! Accordingly, the Russian energy giant Gazprom signed a memorandum of cooperation with Libya's National Oil Company (NOC) for a joint venture, including all aspects of the process, from prospecting to final sale. Gazprom has joined forces with Italy’s ENI to build a pipeline delivering natural gas from Libya across the Mediterranean to Southern Europe. The deal would enable Russia to diversify its energy sources, while continuing to uphold Europe’s dependence on the state controlled Russian Energy Company. Gazprom is also bidding for exploration contracts in Algeria. The Libya deal would allow Gazprom to control gas supply routes to Southern Europe. The deal could serve as the base for the formation of the much discussed natural gas cartel, considering that Libya has the fourth-largest natural gas reserves in Africa after Algeria, Nigeria and Egypt. For Russia a concrete deal in Libya would allow it to thwart the plans of European governments, which consider North Africa as a possible alternative energy source to reduce dependence on Russia. Gazprom bought exploration and development licenses last year in Libya and has said it plans to invest USD 300 million in the project over the next year. Libya, therefore, offers Gazprom the opportunity to increase its access to European markets. ENI can help because it already holds a 50 percent stake in the Greenstream pipeline in Libya, which has an annual capacity of eight billion cubic meters of gas. The Greenstream pipeline, is a part of the Western Libya Gas Project, is a 520 kilometers long natural gas submarine pipeline from Mellitah in Libya to Gela in Sicily, Italy. ENI built the pipeline with NOC from 2003 to 2004, when it was inaugurated. ENI also holds a stake in a liquefied natural gas plant in Libya, for transporting natural gas by ship, and a 33.3 percent stake in the Elephant oil field. Last year, the company said it had agreed to expand its contracts for the production and export of Libyan oil and natural gas for next 25 years. Meanwhile in the United States Even as American oil companies have lined up to secure contracts to start developing Libya’s oil resources since 2004, an American law continues to threaten the deals. Libyan government members have had to quickly acquaint themselves with lawyers and lobbyists in Washington (and appeal directly to president Bush), to secure Libya’s exemption from a law that Congress passed in January providing for victims of terrorist attacks to be compensated. The measure applies to Iran, Syria, North Korea, Cuba, Sudan and Libya. The Libyan government signed a $2.4 million contract with the prominent Washington lobbying firm led by Bob Livingston, a former Republican congressman from Louisiana to challenge the law. The risk to oil companies is that the law allows their foreign assets to be seized in order to compensate victims of state-sponsored terrorism (such as the type of terrorism accusations that Libya has confronted). For Libya, the risk is that it would risk losing any investments in the United States or any funds held by American companies doing business with it. Attorneys for victims of the terrorist attacks (particularly the Locherbie sabotage of an airliner in flight), are eager to put pressure on Libya, which they argue has refused to fully pay some settlements and is still fighting over compensation in other cases, estimated at least USD 3 billion. The Bush administration faces pressure from military groups who want to see that the “United States is willing to stand up for American soldiers and others killed and wounded in attacks” rather than back the interests of oil companies. Thomas Fortune Fay, who represents 37 American military personnel wounded in the 1986 bombing of a Berlin discotheque, has used the new law to file liens against 13 corporations in the United States, including Exxon Mobil and Occidental Petroleum, whose chief executives both visited Qadhafi in 2007. Representatives of the oil companies say that victims of terrorism are entitled to appropriate compensation, but they object that the law threatens to disrupt commerce that the United States is trying to encourage. The lobbying effort has not been in vain, as four Bush administration cabinet members urged Congress in March to exempt Libya from the law, because it would jeopardize billions of potential investment dollars by U.S. companies in Libya's oil sector. Of course, foreign companies would also gain significant advantages. Libya’s international diplomatic standing would remain unaffected, meaning that foreign companies would continue to invest without fear of retribution in the form of US sanctions. This had been the case under the Amato Iran-Libya act (ILSA), which threatened sanctions against any company doing business with Iran or Libya in strategic sectors with sanctions and fines against their US operations. Of course the law also slows the further advancement of US-Libyan diplomatic relations, which are already tottering on account of the fact that the Bush administration leaves office in 2009. There is no guarantee that Republican John McCain or whoever wins the democratic nomination would be interested to help Libya skirt the legislation – promoted by the Democratic controlled Congress. Note: To read more, click here

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