Libyan oil fails to grease the wheels of normalisation with the United States

The United States is having trouble whipping up support amongst even its allies for its unilateral sanctions against Libya after the United Nations suspended embargoes against the oil rich North African state.

While European oil firms scurry for lucrative oil and gas exploration concessions in Libya, fuelling their governments' desire to bust sanctions, the United States Congress looks set to dig its heels in further and renew for another five years its controversial Iran-Libya Sanctions Act (ILSA).

The act bans US firms from investing in the oil and gas sectors of the two petroleum-producing states and threatens punitive action against foreign firms that invest upward of $20 million in either of the two countries.

Two US congressional committees have endorsed over the past two months plans to extend, for another five years, the unilateral sanctions. The law is due to be debated by congress in August. The move has angered American oil companies who see billions of dollars worth of investment opportunities passing them by.

President George W Bush, from the US oil heartland of Texas, had sought a shorter, two-year extension of the act in a bid to phase out the popular legislation supported by many congress members and appease his important oil industry supporters.

The Ways and Means Committee, one of the two congressional bodies looking into the law, added a review mechanism that could end the sanctions after 18 months. At the time of press, it was unclear which version Republican leaders would put to a vote on the floor.

The law was enacted in 1996 to punish the two countries for what Washington says is their support for international terrorism and the development of weapons of mass destruction. Both countries have repeatedly dismissed the charges.

Lonely stance

As with its stance on global warming that rejected the Kyoto Agreement and its controversial missile defence system, the United States is increasingly finding itself isolated in its position on Libya.

Most of the international community has expressed its view that Libya has sufficiently demonstrated to the world that, even if it once did, it does not now sponsor international terrorism. The United Nations Security Council suspended, but has not yet permanently lifted, sanctions against Libya in 1999.

Libya has repeatedly called for all sanctions imposed against it following the bombing of Pan Am Flight 103 in 1988 over Lockerbie in Scotland to be lifted permanently since it had satisfied the precondition of handing over the two Libyans suspected of carrying out the bombing to a Scottish court in the Hague.

Libya wants to improve relations with the United States but does not plan to apologise for the Lockerbie bombing, the son of Libyan leader Muammar Gaddafi said. “We cannot apologise for something we haven't committed,” said Al-Saadi Gaddafi, echoing Libya's official line that it does not sponsor terrorism and that there was insufficient evidence linking it to the Lockerbie bombing.

Libya has also been working to improve its status among its African and Arab neighbours through aid and political initiatives to help end conflict on the continent. It put forward an ambitious plan that was accepted by the Organisation for African Unity (OAU) to extend African unity in a practical sense and to create a common market modelled on the EU.

It has also signed a free trade agreement with three other Arab states, including Iraq. Whether these plans will see fruition or will fall by the wayside as similar initiatives in the past have done remains to be seen.

The OAU backed Libya in its call for the lifting of sanctions and its right to receive compensation in a communiqué dated July 8, the official Libyan newsagency, Jana, reported. An emergency session in March of African heads of state in Sirte, Libya, also backed the call.

For its part, the European Union said the US legislation contravened international law and national sovereignty. “Unilateral sanctions laws with extraterritorial effects, such as ILSA, create unnecessary and unhelpful differences between us,” European foreign ministers said in a statement issued on 16 July. “They violate international law and state sovereignty and are prejudicial to the rights and interests of the European Union.”

Rich pickings

The American oil industry has been left to wonder whether the probable renewal by Congress of sanctions in August will strip them of billions of dollars of oil prospects and why a law that has failed to achieve its stated goals is being renewed. The articles regarding foreign companies investing in the two countries have never been enforced since it was passed some five years ago.

Officials say Washington has feared triggering major trade frictions with allies in Europe or Asia. In a deal struck between the EU and the previous US administration, Former President Bill Clinton said he would not impose sanctions against EU countries if they helped in the fight against international terrorism.

“We are watching on the sidelines as our competitors flood into those countries,”Dow Jones quoted Gary Marfin, manager of government affairs for Houston-based Conoco Inc, which has a history in both Iran and Libya, as saying.

At present, European oil firms, including France's TotalFinaElf, Italy's Agip, Spain's Repsol YPF and Germany's Veba Oil have a strong presence in Libya and most are looking to expand their output.

Repsol plans to increase its current production level to 200,000 bpd from 150,000 bpd by the end of this year. TotalFinaElf expects its offshore production to reach 30,000 bpd by 2003.

In May, Wintershall, a German oil company, sought permission from Libya to drill in oil fields that formerly belonged to American companies whose operations have been frozen by US sanctions since 1986.

Fuelling the war against ‘rogue' states

The US stance on sanctions against Libya (and also Iran) stands in contrast to President Bush's pledge to ‘kickstart' America's slowing economy. He defended his administration's decision to pull out of the Kyoto agreement on global warming by saying that his country was living through an energy crisis – despite the fact that it consumes a quarter of the world's energy – and that the environment would take a back seat to the economy.

It would, therefore, make sense for a country undergoing an economic downturn and reportedly experiencing an energy crisis to look aggressively for the resources necessary to fuel an economic recovery, such as Libyan oil, which would provide the fuel to help fill the energy deficit and the profits to help boost the economy.

Many industry players, as well as members of the administration, in the United States have questioned the usefulness of unilateral sanctions, especially since no action has ever been taken against foreign companies investing in Libya or Iran. Vice President Dick Cheney, in particular, gave frequent speeches blasting US sanctions on Iran when he was chief executive of oil-services giant Halliburton Co.

The likely decision to extend sanctions has caused bewilderment not least among American oil companies. There have been suggestions that the United States needs to keep alive the perceived danger of the so-called ‘rogue' states and cannot be seen to ease up on them in order to justify a massive new wave of military expenditure.

The issue of ‘rogue' states ties in with the Bush Administration's aggressive push for European support for its controversial missile defence scheme, the European Report said. The US argues that ‘rogue' states are spending a great deal of money on building missile delivery systems, and that Europe and America need to develop effective defences against them, the Report added.

President Bush has called the system a ‘defensive' mechanism. Nevertheless, the plans have been met with anger, contempt or reluctant acceptance by the United States's allies and adversaries alike, who view it as, at best, an expensive folly and, at worst, a call to arms.

Russia has condemned the ambitious system, which the Reagan administration unsuccessfully tried to launch in the 1980s as the ‘Star Wars' programme, saying it jeopardised previous disarmament agreements, in particular the 1972 Anti-Ballistic Missile treaty.

China added its voice to the chorus of opposition, which included the EU, saying it could trigger a new arms race. Russia later begrudgingly accepted the system as a fait accompoli and tied its approval to further disarmament.

The United States may potentially be losing a few billion dollars in foregone opportunities in the oil and gas sectors of ‘rogue' states, such as Libya, Iran, Iraq and Sudan, but US industry is thirsting for the hundreds of billions of dollars of public money that the government will pump into developing the Star Wars II system.

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This article appeared in the August 2001 issue of Oil and Gas North Africa magazine.