August 2, 2010 / 11:58 AM / 9 years ago

FACTBOX-Key political risks to watch in Libya

RABAT, Aug 2 (Reuters) - An unpredictable succession, suspicion of foreign influence, diplomatic rows, policy uncertainty and the lingering threat of social unrest all pose potential risks for investors in oil-producer Libya.

Here are some key factors to watch.


Muammar Gaddafi has led Libya for over 40 years, longer than any living African leader. He is in his late 60s, but there is no framework for his succession and he has carefully avoided designating a successor. Analysts say the veteran leader appears to be in good health but that, when he dies, years of instability could follow as competing groups and relatives struggle for supremacy. The liberal-leaning Saif al-Islam Gaddafi, who took a central role in ending Libya’s stand-off with the West, has the highest profile among Gaddafi’s sons but lacks any official role and Libya experts say he has little support from the army, whose endorsement is seen as vital if he is to hold power. Two other sons, Mutassim and Khamis, are both thought to have stronger power bases in the military. Their policy views, including on the economy and outside investment, remain unknown but Libya watchers see Mutassim — Libya’s National Security Adviser — as close to the old guard that opposes many of the reforms proposed by Saif al-Islam.

What to watch:

- Whether Saif al-Islam becomes head of the Social Popular Leadership, making him the country’s de facto second in command. Analysts say he turned the job down last year because it might still not give him the power he needs to push through reforms.

- Supporters of Saif al-Islam say he plans to try to have a constitution adopted to set up formal institutions instead of the complex web of informal spheres of influence on which his father’s system is based. If he goes ahead with his plan, that could indicate he is staking a stronger claim to the succession.

- The fluctuating fortunes of Saif al-Islam’s media and other projects. One example: two newspapers allied to him stopped publishing in January, citing problems with the authorities, but they were back on newsstands earlier this month. [ID:nLDE6671WP]


With oil money swelling Libya’s coffers after years of austerity, foreign firms are jostling for billions of dollars of potential deals in housing, transport infrastructure, telecoms and public services. [ID:nLDE6491DH] But the environment is fraught with dangers, from bureaucratic lethargy to a captive judiciary and risks tied to land ownership and changing business rules. Business-friendly reforms are stalled and Libya sits in 130th place out of 180 countries in Transparency International’s 2009 Corruption Perceptions Index. Diplomatic hiccups can quickly have a devastating effect on companies operating in Libya. [ID:nLDE648081] Switzerland’s ties with Libya broke down after the brief arrest of another son of Gaddafi, Hannibal, in Geneva in 2008 and the dispute drew in the European Union, United States and major energy firms. Libya stopped oil exports to Switzerland and withdrew assets from Swiss banks. In March this year, it imposed a trade and economic embargo on Switzerland, dealing a blow to Swiss business interests in Libya. The two governments agreed to patch up relations last month and a Swiss businessman caught up in the dispute was allowed to go home after being held for nearly two years in Tripoli. Libya showed it was even prepared to challenge its old foe the United States when it threatened U.S. oil companies with unnamed consequences in response to caustic comments about Gaddafi made by a Washington official. The official later apologized. [ID:nLDE6291FQ]

What to watch:

- Rising oil prices would give the government more money for its investment programme. But they could also dull the incentive to make Libya more attractive for investors.

- Any signs that smaller companies are beginning to take the plunge and invest in Libya. So far it is viewed as the preserve of big multinationals that benefit from intense government lobbying and are diversified enough to spread their risks.

- Any sign that Saif al-Islam’s reformist camp is weakening might encourage the government of Prime Minister Al Baghdadi Ali al-Mahmoudi to take a more protectionist line on inward investment and tighten terms for foreign business.

- Signs the leadership is trying to forge a coherent vision for the economy. The country’s state-run markets are now crammed with foreign consumer goods but a nebulous system of central economic planning and wealth distribution remains. Gaddafi still cherishes his vision of Islamic Socialism, with its system of grass-roots government by town-hall committees in which political parties are banned. Saif al-Islam has commissioned successive reform plans from Western consultancies but their free-market vision is resisted by the powerful old guard.


Libya was for decades the subject of international sanctions, and Western governments have accused it in the past of seeking weapons of mass destruction and of having ties to violent militant groups. Muammar Gaddafi renounced these policies and, soon after, sanctions were lifted. However, Libya’s past can come back to haunt firms who do business there. A panel of U.S. Senators wants to hold a hearing to establish whether BP (BP.L) had any influence on the British decision to release from prison Abdel Basset al-Megrahi. He is the Libyan intelligence officer convicted of the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland. [ID:nN2785425].

Things to watch:

- Will the Senate investigation lose steam now that BP has successfully capped the leaking oil well in the Gulf of Mexico which triggered an outpouring of anger against the company among U.S. politicians?

- Will other international firms come under pressure for investing in a country with such a chequered past?


Firms including Exxon Mobil (XOM.N), Occidental (OXY.N), and ENI (ENI.MI) are sinking billions of dollars into Libya for a share of Africa’s biggest proven oil reserves. Foreign players accepted tight production shares when bidding for Libyan acreage and finds have proven disappointing so far, although a vast area remains to be explored. Experts say project approvals for drilling new acreage and enhanced oil recovery have been moving at a glacial pace. When one firm — Canada’s Verenex VNX.TO — announced a big find, Libya’s government bought the company for less than its market price by force, a reminder of the risks run by smaller players.

What to watch:

- A new framework hydrocarbon law, Libya’s first in more than 50 years, is being drafted and the government has not said whether it will alter conditions for foreign oil firms.

- National Oil Corporation Chairman Shokri Ghanem commands respect with foreign energy companies but his authority has been challenged by a new Supreme Council For Energy Affairs. The council is dominated by conservatives who may feel Ghanem is a soft touch for oil firms and call for more resource nationalism.


A lack of economic opportunities has led to occasional outbreaks of local unrest but the government keeps a tight grip on security. Opposition groups are weak and political activity outside the structure of the regime is virtually impossible. The population has grown fast and pressure for better living standards has risen after sanctions. With higher oil revenue, the state can distribute more wealth to buy popular support. The pardon and release from prison of hundreds of Islamist militants on March 23 shows the government is confident that it has neutralised the threat from the Libyan Islamic Fighting Group (LIFG) that once tried to assassinate Gaddafi.

What to watch:

- Any sign that LIFG splinter groups based abroad are attempting to revive the movement’s activity within Libya or join with Al Qaeda’s Maghreb wing based in neighbouring Algeria.

- Risk of unrest in and around the eastern city of Benghazi, an area of traditional opposition to Gaddafi that has benefited less than other regions from government largesse. Civil disturbance often goes unreported in Libya so talk of public gatherings or street violence could be a sign of bigger trouble. (Reporting by Tom Pfeiffer and Christian Lowe; Editing by Giles Elgood) * For political risks to watch in other countries, please click on [ID:nEMEARISK]

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