Libya's Oil Industry Under Gaddafi

=Overthrow of the Monarchy 1969=

When Libyan King Idris was overthrown in a coup led by the 27-year-old Muammar Gaddhafi, the country and its oil industry embarked upon a radically new chapter in their history. According to the US State Department the early years following the revolution can be seen to be divided into three recognizable political phases:

1. 1969-70: a new political and organizational model was sought to overcome the shortcomings of the preceding monarchy.

2. 1971-75: the Arab Socialist Union was established as the sole political party, based on the Nasserite Constitutional model (which came into force in Egypt in 1971, based on the principles of freedom, socialism and unity).

3. Towards the end of 1975: the Nasserite model was replaced with an officially sanctioned vertically organized system of 'direct democracy', governed by popular Peoples' Committees.

The original task of these Committees was to establish the political system, but over the years members increasingly controlled the system and shut out the political opposition, effectively dissolving it. The ideological basis of Colonel Gaddafi's new regime was his Green Book, touted as an alternative to both communism and capitalism, and he named his new system a Jamahiriya (loosely translated as a 'state of the masses').

New Constitution
Following the overthrow of the monarch, a provisional Constitution was announced by the Revolutionary Command Council (RCC) in 1969, to remain in force until a permanent version could be adapted. In 1977 this provisional document was replaced by a new Constitution and Libya's official name changed from the Libyan Arab Republic to the Socialist Peoples' Libyan Arabic Jamahiriya.

The new Constitution incorporated a blend of Islamic and socialist theories espoused in Gaddhafi's Green Book and his Third Universal Theory. The direct authority of the people constituted the political order, while the social system was governed by the Holy Koran. Political institutions were represented by Peoples' Congresses, committees, trade unions and vocational syndicates.

=Nationalisation=

In 1969 the Libyan state took over 51 percent of the capital of foreign banks, and in 1970 the government formally nationalised all banks. Private ownership of financial institutions was not officially permitted until 1993.

The Libyan regime also began a process of nationalisation of the oil and gas sector in the early 1970s. This began with demands for higher petroleum prices, a greater share of revenues and more control over development of the industry. This led to foreign petroleum companies agreeing to a price increase of more than three times the rate previously (from US $0.90 to US $3.45 per barrel) early in 1971. In March 1970, the Libyan Government dissolved the Libyan Petroleum Company (Lipetco), whose functions up until then had included the negotiation and supervision of oil concession agreements, replacing it with the Libyan National Oil Corporation (NOC). Furthermore, in July the regime nationalised the networks for distributing oil products owned by foreign oil companies. Henceforth only the NOC would have the right to distribute such products throughout the country.

Later in 1971, Libya nationalised the holdings of British Petroleum (BP) as a gesture in support of Islamic and pan-Arab power. This move followed Britain's withdrawal from three small islands in the Straits of Hurmoz, leaving them to 'Iranian occupation' (Iran under Shah Reza Pahlavi was then perceived as a close ally of Israel). In 1973, Libya announced the nationalisation of oil major Hunt's assets in the Sarir field, in retaliation for US support of Israel. Later in the year the regime issued a decree nationalising US-owned Occidental, transferring 51% of all funds, rights, assets, shares and interests to the state. The Oasis Group also signed a similar agreement (affecting Continental, Amerada, Marathon and Shell).

In September of 1973 Libya issued a 16-article law nationalising 51% of the assets of all remaining oil companies operating in Libya. This policy was not outright nationalisation, but part of a general program Libyanizing the economy. Dr Mahmoud Elwarfally suggests in his book on the Libyan oil industry that a total nationalisation could not be pursued until a Libyan staff of technicians and experts was ready to take over. Over the course of 1973, Libya also played an active role in the Arab oil embargo on the USA in the wake of the Yom Kippur war between Israel and its Arab neighbours. In 1974 further nationalisation activity took place, with Gaddhafi nationalising three US companies by seizing the remaining 49% share of California Asiatic Company, American Overseas Petroleum Company and the Libyan-American Oil Company. By 1975 the assets of almost all companies working in Libya were either fully nationalised (such as BP) or majority owned by the Libyan State, who held a 63% of the assets of German Wintershall, 85% of Austrian OMV, 59.2% of the Oasis Group and 50% of the assets of Italian Agip. According to ElWarfally, these moves were widely interpreted as Gaddhafi using oil resources as a political weapon.

=Promotion of Arab Unity=

Colonel Gaddhafi was said to be inspired by Egyptian nationalist leader Gamal Abdul Nasser, who dominated Arab politics through the 1950s and 1960s. Although Gaddhafi has always presented himself as an Arab nationalist, his attempts to forge unity with other Arab states met with little success, going so far as triggering a brief war with Egypt in 1977. In the 1990s Gaddhafi eventually turned his back on the Arab world, which chose not to challenge the UN sanctions imposed on his regime, and instead concentrated his efforts on establishing closer relations with Sub-Saharan Africa. However, his promotion of the idea of a 'United States of Africa' has show little progress.

=The Sanctions Era=

(For more detailed information please see Sanctions Against Libya)

By the 1980s, Gaddhafi's perceived confrontational and often erratic foreign policies, his developing relationship with the Soviet Union as a primary arms supplier, and his involvement with terrorism had antagonized not only the West but Libya's neighbours in North Africa and the Middle East. After the regime was implicated in the bombing of a Berlin disco frequented by American military personnel in 1986, the US imposed economic sanctions were imposed on Libya (Libya's largest single customer for crude oil). Further UN sanctions were imposed in 1992-3 in retaliation for Libyan involvement in the Lockerbie bombing of 1988 and other events, condemning the country to many years of political and economic isolation.

In 1987, reacting to the state of Libya's domestic affairs, some political and economic reforms were instituted. These included a limitation of the authority of the Revolutionary Committees, the lifting of travel restrictions and the reinstating of private enterprises nationalised in 1979. However, by the early 1990s many were abandoned, partly in reaction to the imposition of UN sanctions. Reforms were cautiously reinstituted in 1999.

From 2003 onwards, as a result of renouncing its moves to develop weapons of mass destruction and other diplomatic gestures, sanctions began to be lifted and Libya and its oil industry were gradually reintegrated into the international community.

=Post-Sanctions Era=

Following the normalization of relations with the US and EU in the early 2000s, interest from foreign investors increased notably, especially in the hydrocarbon, banking and infrastructure sectors. Nevertheless, the economy remained heavily dependent on hydrocarbon resources and largely state controlled. According to the Bertelsmann Foundation, by 2012 oil production was expected to double compared to 2010 levels to reach around 3 million barrels per day (bpd), on the condition that the advanced exploration and extraction techniques of international oil companies (IOCs) were utilized. However, the worldwide recession and tumultuous events of 2011 clearly put these goals at risk.

In 2005 Muammar Gaddafi's son Seif al-Islam, described by the New York Times as the "Western-friendly face of Libya", set out proposals for economic reform in the country. The reforms were designed to divest the state's hold on the economy, streamline government, speed up privatization and liberalize the media sector in a bid to begin a transition from an authoritarian regime to a more liberal and regionally competitive economy. One of the first projects was to involve a study of up to two years by the UK-based Adam Smith Institute on how to proceed with government reforms. However, such reforms were reportedly stymied by opposition from inside the ruling elite and in 2010 the independent newspaper he helped to found was forced to mute its criticism of the authorities.

In 2009 Gaddhafi courted controversy after he suggested during a video conference with students from Georgetown university that Libya could nationalise its oil and gas sector. According to the UK's Telegraph, industry experts did not dismiss the possibility, however they saw the threat as a tactical move aimed at leveraging the expected renegotiation of existing contracts with IOCs and prompting them to contribute to the US-Libyan claims compensation fund, among other reasons.

=References=