The real battle over Libya’s future has less to do with opposing political factions than with which foreign players will gain control over the country’s natural resources — oil, natural gas, and water. Europe’s leading oil firms are busy jockeying for position in the impending division of the spoils, while insiders watch for China to make its move.
A decision on Friday by the U.N. Security Council frees the Libyan national oil company of restraints on its financial operations, which opens up Libya's ability to pay for reconstruction. That process ought to get a further lift from Obama’s meeting on Tuesday with the interim government leader Mustafa Abdul Jalil.
Libya currently produces two percent of the world's oil, but two things make it a more formidable player in the world market than the numbers would indicate. One is its location, a short trip across the Mediterranean from Italy, France, and Spain, with ready access to European energy markets. The other is the fact that Libya has substantial known reserves — the largest in Africa, and ninth largest in the world — yet most of the country remains “underexplored” and unmapped, offering the possibility of even greater supplies in the future.
To date, Italy has been the largest beneficiary of Libyan oil upplies, for a number of reasons. The Italians invaded and colonized Libya in 1911, left it in tatters following the big tank battles of World War II, and in recent years has emerged as a major force in its oil economy and foreign policy. Before the revolt, Berlusconi enjoyed warm relations with Qadaffi. Italy and Libya worked hand in hand in an effort to slow the flow of immigrants from the Red Sea and northern Africa into Europe with the Italian coast guard intercepting boatloads crossing the Mediterranean through the Italian island of Lampedusa, which lies off the Libyan coast below Sicily. Italy also drew one third of its entire oil supply from this former colony. Eni, the Italian oil giant, is the largest foreign oil company in Libya. Recently Russia’s Gazprom joined Eni in a joint venture to drill for oil under the desert.
The giant international oil companies are socked into Libya and they all have been vying for oil and gas throughout the fighting. According to a report in the Guardian, the London oil trading firm Vitol was in close touch with the rebels, arranging fuel supplies. The new interim government has said France, Britain, and Italy will get favorable treatment compared to China and Russia. Liberation, the French newspaper, reported that Sarkozy cut a deal with the rebels in which France would get 35 percent of the country’s oil in return for military assistance — on the face of it, a pretty wild claim.
Eni's chief executive officer, Paolo Scaroni, told the Wall Street Journal earlier this month that the new Libyan government insists it will honor existing contracts. The AP reported executives from Repsol, the Spanish oil firm, were in Benghazi discussing restoring existing operations. Total, the French firm, is preparing to re-enter as well.
Actually the key factor in this game could turn out to be not so much oil, but natural gas. Right now Russia has a near monopoly on gas going into Europe and at an exorbitant price, but its reliability in winter months is questioned. Libyan exports of gas through the Greenstream pipeline to Sicily, also run by Eni, have been increasing. Some industry commentators suggest that natural gas exports might dramatically expand so that Libya acts as a counterweight to the Russians. That, at least, seems to be how the Russians, who stayed well clear of the NATO air attacks, see the situation. According to the AP:
"Dmitry Rogozin, Russia's ambassador to NATO, described its former Cold War rival's intervention in Libya as legitimate because it was aimed at protecting civilians, but he said Russia believes the underlying reason was access to Libyan oil.
'For Russia, NATO's operation in Libya indicated that the major interests of the alliance now lay not in Europe's East — where its adversaries the Warsaw Treaty Pact and the Soviet Union used to be — but in oil-rich lands of Northern Africa and the Middle East,' Rogozin said in an email."
It seems hard to believe existing oil arrangements — some 50 companies have been engaged in the Libyan oil business — will be seriously affected by Quadaffi’s exit, but the sleeper here is China, which already is ensconced in the Libyan economy, and according to Toronto’s Globe and Mail, offered Quadaffi armaments during the war. These included shoulder-held rockets similar to the U.S. Stinger. They were to be shipped through Algeria or South Africa.
Libya now is China’s eleventh largest source of imports. And before the revolt, 36,000 Chinese were working on 50 different projects within the country. China played both sides during the revolt. While it was peddling arms to Quadaffi, Ma Zhaouxu, spokesman for the Chinese Ministry of Foreign Affairs, issued a statement saying, "The Chinese side respects the choice of the Libyan people. The Chinese side is willing to work with the international community to play a positive role in the reconstruction process of Libya in the future.’’
Water presents an equally controversial subject in Libya. Quadaffi’s ambitious Great Man Made River, a 2,333 mile network of irrigation pipes drawing water from acquifers beneath the southern desert and turning the arid wastes into lush farmlands. It sounds like a project imported straight from the Colorado river whose diversion has transformed much of the U.S. desert west into into green farmlands and pleasing suburban front lawns. And, in fact, it was Armand Hammer’s Occidental Petroleum that seems to have introduced earlier and smaller versions of this irrigation scheme.
There is one big hitch to this water project. The desert aquifers, as Sandra Postel of Worldwatch, points out in her book "Last Oasis," were filled with water 30,000 years ago when there was considerably more rainfall than there is today. In examining this project, engineers now predict the desert aquifers will be sucked dry within 40 to 60 years. The water will all have been pumped up to the Mediterranean coast for agriculture.The original coastal water sources have been exhausted. So, by then the food and water purchased with oil money will be gone and the whole thing will go down in history as folly.
To defend against such an eventuality Quadaffi looked further afield to line up more water. He hit on Mali a poor country, which up to the present time, was made self sustainable by prudent use of shallow ground water wells. Fred Pearce in Environment 360, a Yale publication, describes the sorry story of what happened when Quadaffi fixed his gaze on Mali:
"Libya’s wholesale move into Malian irrigation and agriculture is the result of a secret deal between Mali’s president, Amadou Toumani Toure, and Libya’s Colonel Gadaffi. Paid for by Gadaffi’s sovereign investment fund, the Libya Africa Portfolio Fund for Investment, the deal hands the land to a Libyan-controlled organization called Malibya for 50 years and gives the Libyans undisclosed rights to the region’s water. Why would the Mali president sign up to this?
Local campaigners say their government is in thrall — and hock — to Libya because it has become dependent on Libya for aid and investment. Many of its civil servants work in offices built by Libya, and international visitors stay at Libyan-built hotels. And, says Lamine Coulibaly, head of communications for the Mali small farmers’ union, CNOP, the government is so obsessed with getting investment for its agriculture that it cannot see when that investment will do more harm than good to its people."
The infrastructure for agribusiness is in place, and if Libya manages to siphon off water from sub-Saharan Africa into growing crops for Europe and likely the United States, it will be a major player in food as well as fossil fuel supplies. All this will provide the money for the new government, which may or may not provide some form of limited democratic rule.