US companies upbeat on possible return to Libya

June 10, 2002
US companies with languishing interests in Libya said late last month that they are growing increasingly hopeful that international and US sanctions against the North African nation will be lifted as soon as first quarter 2003.

US companies with languishing interests in Libya said late last month that they are growing increasingly hopeful that international and US sanctions against the North African nation will be lifted as soon as first quarter 2003.

Driving that optimism is a proposed $2.7 billion settlement detailed May 28 by attorneys who represent families of the victims of the 1988 PanAm Flight 103 bombing.

Attorneys for some of those families said Libya has agreed to pay $10 million/victim minus lawyer fees provided sanctions are removed. Under the payment terms, the money would be kept in escrow until the political conditions were met: 40% of the money would be released when United Nations sanctions are lifted, 40% would be released when US sanctions are lifted, and the remaining 20% would be released when the US removes Libya from a congressionally mandated Department of State list of terrorist regimes.

Official complications

Officially, the Libyan government May 29 denied making the offer, saying "Libya has nothing to do with this so-called agreement and is not a party to it."

Yet US government officials and industry sources familiar with the discussions said there remains a strong commitment by Libyan President Moammar Qaddafi to ease tensions with the US; he has said through intermediaries he wants to encourage US investment back to his country.

A formal meeting between the US, UK, and Libya is expected in early June in which the proposal could be discussed in further detail. Another area expected to be discussed is the wording of a statement demanded by the victims' families in which Libya agrees to take responsibility for the bombing and renounce terrorism.

Libya so far has resisted the call by the victims' families to agree to any statement that accepts "responsibility"; however, diplomats are working on a "suitably remorseful statement" in the words of one US government official familiar with the talks.

Steps forward, back

Following the Sept. 11, 2001, terrorist attacks on New York and Washington, DC, US companies were optimistic that new Libyan cooperation against terrorism might result in a diplomatic quid pro quo. As yet, none has materialized.

Congressional resistance to lifting sanctions has been one key obstacle; several families who have signaled that they would reject the terms of the proposed settlement have been very successful in the past in having their case heard by some key lawmakers, including Sen. Edward Kennedy (D-Mass.). Jewish groups have also successfully lobbied Congress not to lift sanctions on either Iran or Libya.

Deal momentum

Nevertheless, keen interest by US and Libyan officials to build momentum for a deal remains, translating into a possible announcement following the fall congressional elections to limit any political damage.

"A significant shift in Washington's policy could take place after the congressional midterm elections in November 2002, opening the way for the return of US oil companies as early as first quarter 2003," said Raad Alkadiri, an analyst with Petroleum Finance Co.

For US companies, the nearly decade-old struggle to restore commercial ties between the US and Libya has been continuously marred by mixed signals from various administrations and Congresses.

Having two former oil company executives in the White House led to speculation in late 2000 that a new administration under President George W. Bush would quickly lift sanctions against both Iran and Libya. But that failed to materialize, thanks to congressional resistance and, in the case of Iran at least, an unwillingness to open up a meaningful dialogue, in the opinion of some US government officials.

Another complication has been that the Bush White House itself has been conflicted over its Middle East policy, with some State department officials wanting to engage both governments, while other policy-makers insist that isolation is still necessary.

Most US-based multinational oil companies have an interest in opportunities in Libya because of its low production costs and ready access to western markets. But Occidental Petroleum Corp., Marathon Oil Co., and Conoco Inc. stand to immediately gain from a reversal in US-Libyan relations. Those three still have Libyan oil fields that Tripoli once threatened to sell unless US policy changed; however, Tripoli retreated from that position this year.

Diplomatic thaw?

Companies also viewed as promising the positive comments Libyan officials made following the Sept. 11 terrorist attacks that suggested a new era of cooperation. Not much has materialized since Libya first offered its help, although there have been small hints that a diplomatic thaw is beginning. Companies were encouraged by a decision by the US Office of Foreign Assets Control (OFAC) last December to allow geologists from US oil companies to travel to Libya this year to monitor their concessions, where production has steadily declined in their absence.

US officials, however, insist the OFAC decision is not a diplomatic quid pro quo. And analysts also stress there are no guarantees that sanctions could be lifted next year, because there is a lot of political maneuvering yet to be done before US companies can return.

"Even if a deal is finally concluded, Washington is unlikely to respond quickly by lifting unilateral sanctions on Libya," said Alkadiri. "Compensation payment fulfills only one of the [US] conditions for removing the embargo, and there is little doubt that the culpability issue will figure prominently in the bilateral talks that will follow a compensation agreement."

Congress and the minority of families expected to oppose the settlement may also be able to stall a final resolution well into 2003, analysts and companies acknowledged.