Libya threatens future oil contracts; US backs no-fly zone

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 18 -- Libya’s government maintained its pressure on international oil companies even as the US government announced its backing of a proposed no-fly zone along with other measures aimed at containing forces loyal to the country’s leader Moammar Gadhafi.

“We are discussing very seriously and leading efforts…around a range of actions that we believe could be effective in protecting civilians,” said Susan Rice, US ambassador to the United Nations.

“The US view is that we need to be prepared to contemplate steps that include, but perhaps go beyond, a no-fly zone,” Rice said after closed-door discussions with fellow UN Security Council members on Mar. 16.

Rice’s remarks came after Libya’s Deputy Foreign Minister Khaled Kaaim, building on earlier threats, said his country may adopt preferential policies when renewing its oil contracts with other countries.

Kaaim told the New China news agency that Libya would continue to respect existing contracts with western oil companies, adding that the country's national oil company still maintains contact with some partners of the West, including several US companies.

The deputy foreign minister expressed hope that the safety of all people will be secured in Libya and those who left the country temporarily due to the current turbulence will return to the country to resume work soon—a reference to oil workers evacuated as Libya’s internal strife mounted.

Kaaim’s remarks followed earlier demands by the Libyan government for IOCs and shipping forms to resume their operations in the North African country (OGJ Online, Mar. 14, 2011).

Western firms evacuating
Regardless of contracts, however, Kaaim said the current crisis will “inevitably” affect its cooperation with some western oil companies—a point underlined by independent analysts.

“If Gadhafi wins, Libya will look to the east for support,” said Shadi Hamid, director of research at the Brookings Institution’s Doha Center in Qatar, in a telephone interview with the Financial Times. “Western companies won’t get back in any time soon and won’t be able to invest.”

Eni SPA, Total SA, and Repsol are among western firms that have evacuated their staff and scaled-down production in Libya. But firms from the Far East have also joined the exodus from the war-torn country.

China National Petroleum Corp. evacuated all of its staff in Libya, the company said on Feb. 28, while on Mar. 17, Indonesia announced that two of its oil and gas firms—PT Pertaminina and PT Medco—have also evacuated.

“They had no choice because the risk would be very great if they continue [to operate],” said Fachry Thaib, a representative for Indonesia’s Chamber of Commerce and Industry in the Middle East. Fachry added that the companies would resume operations in Libya when the situation improved.

The International Energy Agency earlier said Libya’s oil exports have ground to a halt due to the conflict between rebels and progovernment forces, and that it might be “many months” before the country's crude oil reappears on world markets (OGJ Online, Mar. 15, 2011).

European countries are potentially the hardest hit by the loss of supplies from Libya, with more than 20% of the oil imported by Austria, Ireland, and Italy coming from Libya, IEA said. But it also noted last month that increased supplies already were arriving from Saudi Arabia.

“Saudi Arabia has been actively offering extra crude supplies to offset the lost Libyan barrels, with several buyers expressing interest,” IEA said.

The agency said that the stepped up Saudi supplies were “reportedly” flowing through the kingdom’s 1,200-km East-West pipeline from Abqaiq in the eastern part of the country to the Red Sea port of Yanbu for onward shipment to the Mediterranean.

Meanwhile, underlining the need for urgency, the North Atlantic Treaty Organization urged the UNSC to quickly agree a resolution on Libya on Mar. 17, warning that “time is running out” to stop Gadhafi from prevailing.

“If Gaddafi prevails it will send a clear signal that violence pays. That would be unacceptable from a humanitarian and democratic perspective,” NATO Chief Anders Fogh Rasmussen wrote on his Facebook page.

France, Britain, and the US were pressing for a UNSC vote on Mar. 17 on a resolution that includes a no-fly zone to prevent Gaddafi from using his air force to bomb rebels.

“NATO stands ready to protect the civilian population if there is a demonstrable need, clear legal basis and strong regional support,” Rasmussen said. “But time is running out. The sooner the [UN] can reach an agreement the better.”

Even as diplomats backing the no-fly zone pressed for a vote at the UNSC, however, the Libyan leader also expressed his awareness of the race for race for time, saying his forces would fight a “decisive battle” at Misrata on Mar. 17.

“The urgency of the situation is clear,” said Alistair Burt, a British Foreign Office minister. “It is the very urgency of the situation that makes it imperative that something is done and something today.”

Contact Eric Watkins at hippalus@yahoo.com.

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