U.S., Libya: Lifting the Sanctions?

STRATFOR ^ | September 16, 2004

[Axion]

Summary

There are rumors that the United States will agree to end sanctions against Libya at a meeting of U.S, British and Libyan officials Sept. 17 -- in return for Libya consenting to a verification system to ensure the permanent end to its nuclear program. But even if lifting sanctions is delayed until after the U.S. presidential election, the lucrative potential for foreign businesses and oil exploration means relations between Libya and the United States will continue to move forward quickly.

Analysis

Rumors circulating in the corporate community indicate the United States will end its remaining sanctions on Libya on Sept. 17, allowing U.S. businesses to gain a foothold in the vastly underdeveloped nation. An aviation ban and a freeze on Libyan government assets in the United States will be lifted in exchange for Libya's agreement to be monitored to ensure that it has fully given up its nuclear weapons program. Even if the rumors are untrue, the U.S. likely will end sanctions against Libya before the end of 2004.

Although Libya will -- for political reasons -- remain on the U.S. State Department's list of state sponsors of terrorism at least until the U.S. presidential election, Washington is keen to re-establish diplomatic and economic ties with its former nemesis. Libya's need for infrastructure and its potential to provide oil have foreign businesses eager to get to work, and the United States realizes it must act quickly.

Libya, a former international pariah, has been greeted warmly by the countries that shunned it after Libyan security forces were accused of committing various violent acts in the 1970s and 1980s. The United Nations dropped its sanctions against the country in September 2003, and later that year, Tripoli agreed to end its program to develop weapons of mass destruction. In June 2004, the United States and Libya restarted diplomatic relations after nearly 25 years.

Several U.S. companies have expressed interest in starting operations in Libya. Citibank, JP Morgan and American Express Bank all reportedly have drawn up business plans to operate in the country; ChevronTexaco, Marathon Oil and Amerada Hess, among others, are interested in developing the oil sector. Only one impediment remains to these firms doing business with Libya: U.S. sanctions.

The U.S. Treasury Department has a ban on direct travel between the United States and Libya. It has also frozen the Libyan government's assets within the United States since 1986. The terms of the sanctions-lifting agreement would end both of these restrictions, making it much easier to do business in Libya.

Though Washington has planned to end the sanctions for some time, Tripoli's recent announcements about new oil exploration and infrastructure development projects likely contributed to the timing.

On Sept. 15, the Libyan government approved $2.6 billion for new oil projects in the Marzuq Desert in the southwestern part of the country. That area is estimated to have around 2 billion barrels of untapped oil reserves, and there is little infrastructure. Libya estimates the projects, aimed at boosting Libyan oil production to 3 million barrels per day by 2010, will cost around $30 billion. Libya will share the cost with foreign companies -- which will no doubt be eager to sign up.

With U.S. businesses clamoring to get into Libya, it is no surprise Washington has decided to lift sanctions against the country. European oil companies are already operating there and in some cases are the exclusive developers of huge oil fields. U.S. domestic politics will keep Libya labeled as a state sponsor of terrorism, at least until November. But if the United States is to take the economic lead in Libya, it will continue pushing relations forward as fast as possible.

Copyrights 2004 - Strategic Forecasting, Inc. All rights reserved.

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