Libya's return on intelligence
Libya pledged to stop its efforts to secure nuclear and chemical weapons three years ago. With the pledge came potential international business partners. But according to some experts, Libya has yet to act on the potential.
By Adam Wolfe for the Power and Interest News Report (03/04/06)
In December 2003, Libya came in from the cold. Months of discussions with British, and later American, officials led to Libya's public declaration that it would abandon its nuclear and chemical weapons programs. Washington and London hoped to use Tripoli's announcement as an example of the benefits of publicly ending chemical and nuclear weapons programs in other states. North Korea and Iran, however, were not convinced
The timing of Libya's thawing could not have been better for Tripoli. The increased energy demand from the emerging Asian economies, geopolitical uncertainty in other oil-producing states, and the approaching maturity of Middle Eastern oil reserves have increased the value of Libya's untapped energy reserves.
Nevertheless, Libya's re-entry into the West's arms does not guarantee its path to stability. Domestic politics and the centrally-planned economy may still prevent Libya from taking full advantage of its deal with London and Washington.
The oil that came in from the cold
After the Reagan administration's 1986 bombing of Tripoli and Benghazi, Libya began to abandon the Arab nationalist and Palestinian causes in favor of regional and economic concerns. This began the slow drift back to the West that culminated in March of 2003, when Libya's chief of intelligence, Musa Kussa, contacted the British government and signaled Libya's willingness to publicly abandon its programs on weapons of mass destruction in return for concessions from the United States.
Months of negotiations, sometimes including meetings between the CIA and Libyan leader Muammar Ghaddafi, led to the December 2003 announcement of Libya's nascent nuclear, biological, and chemical weapons programs. Tripoli also agreed to spot inspections by the International Atomic Energy Agency (IAEA) and to destroy any missiles with a range beyond 300 kilometers, some of which it had purchased from North Korea.
Washington and London hoped that Libya's example would encourage North Korea and Iran to also abandon their nuclear programs. While this did not pan out, Tripoli played a major role in the outing of Pakistani scientist Abdul Qadeer Khan's nuclear black market.
Libya's declaration of its weapons programs, as well as the US$2.7 billion in compensation it agreed to pay for the victims of the 1998 Lockerbie plane crash, led to the lifting of most of the sanctions imposed by the West. In April 2004, the US suspended its trade embargo on Libya; in June, the US resumed diplomatic relations with Tripoli; by September, Washington officially ended all sanctions on Libya and unfroze $1.3 billion in assets held in the US The EU followed a similar path, and it also lifted its sanctions on Libya in September 2004. Libya had threatened to cancel half of its Lockerbie compensation payments if the sanctions were not lifted by April 2004 - an example of Tripoli's sophistication in geopolitical negotiations.
Boom times in Libya
Libya hopes that the lifting of the sanctions will attract US$7 billion in oil exploration from foreign firms over the next ten years in order to add 20 billion barrels to its proven reserves of nearly 40 billion barrels. Its goal is to raise oil production from 1.7 million barrels per day (BPD) in 2005 to three million BPD over this time period.
The competition to invest in Libya has been steep. Asia's growing energy demands, instability in the Middle East, and the attractiveness of Libya's light, sweet crude helped ensure that Libya was able to extract favorable terms during the two exploration licensing rounds held in 2005. Fifty companies lined up for 23 of 26 exploration blocks offered - each required large signing bonuses to be paid to Tripoli and a relatively small portion of future oil production to be taken by the winning firm. The Japan Petroleum Exploration Company went as low as to only take a 6.8 per cent stake in future production rights from its block. ExxonMobil and China National Petroleum Corporation faired somewhat better with 28 per cent stakes. Libya is also expected to demand contributions to its downstream refining capacity from foreign investors, and it is likely to see its request granted.
Adding to Libya's prospects are its US$45 billion foreign-exchange holdings, annual oil sales running about US$20 billion, and an agreement with France to cooperate on nuclear power for civilian usage.
However, even with foreign investors lining up for contracts in Libya's energy sector, the country's future is still uncertain. Approximately 70 per cent of the work force is employed by the state, yet state wages remain frozen at their 1981 levels (US$3,000 per year). Instead of providing raises, subsidies for water, electricity, and gas help to compensate. The wage freezes and subsidies have led to the peculiar situation in which 20 per cent of citizens are unemployed while two million foreign workers sweat.
Foreign Direct Investment (FDI) has been largely limited to the hydrocarbons sector because of red tape and the past sanctions regime. Still, the country's infrastructure has been largely frozen since the 1980s. Most of the country's oil fields are in need of maintenance and most power plants still run on diesel. Economic liberalization has not spread to the judiciary, nor does Ghaddafi seem inclined to relinquish any of his power - which contributes to the slow pace of finalizing FDI deals as each needs the leader's approval.
While the US is still attempting to use Libya as an example to other states with nuclear weapons programs, it is still cautious in its relations with Tripoli. Washington has decided not to remove Libya from its list of state sponsors of terrorism this year, according to Reuters. "It's a question of confidence and time," Henry Crumpton, the US State Department's coordinator for counterterrorism, told the news agency. This is aimed at giving Washington some leverage to force further economic reforms, but as the intelligence relationship matures between Tripoli and Washington, it can be expected that Libya will be removed from the list in a future review.
Conclusion
Recent events indicate that Libya is open to a reformist path that would allow it to better take advantage of the FDI that followed its declaration of its weapons programs. Saif al-Islam, Ghaddafi's son, and others in the government gave Harvard Business School economist Michael Porter's 200-page blueprint for reforming Libya's economy a warm reception. The report recommends making the necessary investments to increase oil production to three million BPD, diversifying the economy by investing in tourism, agriculture, and construction, but "while retaining the unique character of the Libyan" republic.
Which steps Ghaddafi takes to open Libya's economy and what he does to maintain his grip on power will determine the country's future. Shukri Ghanem's dismissal as prime minister earlier this month seems to indicate that Ghaddafi may be willing to sacrifice some reforms for a tighter grip on power. Libya still faces a long hard march in from the cold; it seems certain that there will be disruptions along the way.
This article originally appeared in Power and Interest News Report, PINR, at (www.pinr.com). All comments should be directed to content@pinr.com.
By Adam Wolfe for the Power and Interest News Report (03/04/06)
In December 2003, Libya came in from the cold. Months of discussions with British, and later American, officials led to Libya's public declaration that it would abandon its nuclear and chemical weapons programs. Washington and London hoped to use Tripoli's announcement as an example of the benefits of publicly ending chemical and nuclear weapons programs in other states. North Korea and Iran, however, were not convinced
The timing of Libya's thawing could not have been better for Tripoli. The increased energy demand from the emerging Asian economies, geopolitical uncertainty in other oil-producing states, and the approaching maturity of Middle Eastern oil reserves have increased the value of Libya's untapped energy reserves.
Nevertheless, Libya's re-entry into the West's arms does not guarantee its path to stability. Domestic politics and the centrally-planned economy may still prevent Libya from taking full advantage of its deal with London and Washington.
The oil that came in from the cold
After the Reagan administration's 1986 bombing of Tripoli and Benghazi, Libya began to abandon the Arab nationalist and Palestinian causes in favor of regional and economic concerns. This began the slow drift back to the West that culminated in March of 2003, when Libya's chief of intelligence, Musa Kussa, contacted the British government and signaled Libya's willingness to publicly abandon its programs on weapons of mass destruction in return for concessions from the United States.
Months of negotiations, sometimes including meetings between the CIA and Libyan leader Muammar Ghaddafi, led to the December 2003 announcement of Libya's nascent nuclear, biological, and chemical weapons programs. Tripoli also agreed to spot inspections by the International Atomic Energy Agency (IAEA) and to destroy any missiles with a range beyond 300 kilometers, some of which it had purchased from North Korea.
Washington and London hoped that Libya's example would encourage North Korea and Iran to also abandon their nuclear programs. While this did not pan out, Tripoli played a major role in the outing of Pakistani scientist Abdul Qadeer Khan's nuclear black market.
Libya's declaration of its weapons programs, as well as the US$2.7 billion in compensation it agreed to pay for the victims of the 1998 Lockerbie plane crash, led to the lifting of most of the sanctions imposed by the West. In April 2004, the US suspended its trade embargo on Libya; in June, the US resumed diplomatic relations with Tripoli; by September, Washington officially ended all sanctions on Libya and unfroze $1.3 billion in assets held in the US The EU followed a similar path, and it also lifted its sanctions on Libya in September 2004. Libya had threatened to cancel half of its Lockerbie compensation payments if the sanctions were not lifted by April 2004 - an example of Tripoli's sophistication in geopolitical negotiations.
Boom times in Libya
Libya hopes that the lifting of the sanctions will attract US$7 billion in oil exploration from foreign firms over the next ten years in order to add 20 billion barrels to its proven reserves of nearly 40 billion barrels. Its goal is to raise oil production from 1.7 million barrels per day (BPD) in 2005 to three million BPD over this time period.
The competition to invest in Libya has been steep. Asia's growing energy demands, instability in the Middle East, and the attractiveness of Libya's light, sweet crude helped ensure that Libya was able to extract favorable terms during the two exploration licensing rounds held in 2005. Fifty companies lined up for 23 of 26 exploration blocks offered - each required large signing bonuses to be paid to Tripoli and a relatively small portion of future oil production to be taken by the winning firm. The Japan Petroleum Exploration Company went as low as to only take a 6.8 per cent stake in future production rights from its block. ExxonMobil and China National Petroleum Corporation faired somewhat better with 28 per cent stakes. Libya is also expected to demand contributions to its downstream refining capacity from foreign investors, and it is likely to see its request granted.
Adding to Libya's prospects are its US$45 billion foreign-exchange holdings, annual oil sales running about US$20 billion, and an agreement with France to cooperate on nuclear power for civilian usage.
However, even with foreign investors lining up for contracts in Libya's energy sector, the country's future is still uncertain. Approximately 70 per cent of the work force is employed by the state, yet state wages remain frozen at their 1981 levels (US$3,000 per year). Instead of providing raises, subsidies for water, electricity, and gas help to compensate. The wage freezes and subsidies have led to the peculiar situation in which 20 per cent of citizens are unemployed while two million foreign workers sweat.
Foreign Direct Investment (FDI) has been largely limited to the hydrocarbons sector because of red tape and the past sanctions regime. Still, the country's infrastructure has been largely frozen since the 1980s. Most of the country's oil fields are in need of maintenance and most power plants still run on diesel. Economic liberalization has not spread to the judiciary, nor does Ghaddafi seem inclined to relinquish any of his power - which contributes to the slow pace of finalizing FDI deals as each needs the leader's approval.
While the US is still attempting to use Libya as an example to other states with nuclear weapons programs, it is still cautious in its relations with Tripoli. Washington has decided not to remove Libya from its list of state sponsors of terrorism this year, according to Reuters. "It's a question of confidence and time," Henry Crumpton, the US State Department's coordinator for counterterrorism, told the news agency. This is aimed at giving Washington some leverage to force further economic reforms, but as the intelligence relationship matures between Tripoli and Washington, it can be expected that Libya will be removed from the list in a future review.
Conclusion
Recent events indicate that Libya is open to a reformist path that would allow it to better take advantage of the FDI that followed its declaration of its weapons programs. Saif al-Islam, Ghaddafi's son, and others in the government gave Harvard Business School economist Michael Porter's 200-page blueprint for reforming Libya's economy a warm reception. The report recommends making the necessary investments to increase oil production to three million BPD, diversifying the economy by investing in tourism, agriculture, and construction, but "while retaining the unique character of the Libyan" republic.
Which steps Ghaddafi takes to open Libya's economy and what he does to maintain his grip on power will determine the country's future. Shukri Ghanem's dismissal as prime minister earlier this month seems to indicate that Ghaddafi may be willing to sacrifice some reforms for a tighter grip on power. Libya still faces a long hard march in from the cold; it seems certain that there will be disruptions along the way.
This article originally appeared in Power and Interest News Report, PINR, at (www.pinr.com). All comments should be directed to content@pinr.com.
posted by Marko at 4/03/2006 09:03:00 AM
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