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Sunday, September 4, 2011

Why Oil Might Be A Factor in the Libyan War

August 15, 2011
last update Sept. 4

In some minds, it's obvious - with the highest oil reserves in all Africa, around 44.3 bbn, Libya is the first African nation singled out by NATO's air forces for regime change, the enforcement of a popular revolution that wasn't popular enough. How could oil not be a factor?

But there is a case to be made that, unlike Iraq for example, American and Western companies were able to drill and make money in Libya's fields, and war wasn't the slightest necessary. This case is frequently made by those who support the war, and even by those who don't. For example, this otherwise strongly critical piece, sidelines the oil motive as a red herring to ignore:
(2) War for Oil or Oil for Sale?

The ‘critical’ Left’s favorite cliché is that the imperial invasion is all about “seizing control of Libya’s oil and turning it over to their multi-nationals”. This is despite the fact that US, French and British multinationals (as well as their Asian competitors) had already “taken over” millions of acres of Libyan oil fields without dropping a single bomb. For the past decade, “Big Oil” had been pumping and exporting Libyan oil and gas and reaping huge profits. Gaddafi welcomed the biggest MNC’s to exploit the oil wealth of Libya from the early 1990’s to the present day. [...] Clearly, with all the European and US imperial countries already exploiting Libya oil on a massive scale, the mantra that the “war is about oil” doesn’t hold water or oil!
As we'll see below, the line "had already “taken over” millions of acres of Libyan oil fields, the most crucial part in my opinion, is in question.

I admit I don't know about all the details in the part I snipped, the companies doing business there with various contracts, some going back to the 1990s. I won't try arguing that some business goes that far back, but from what I gather, the more serious drilling and profits we know of from recent years didn't start until later, around 2003-2004. This was part of the general rapprochement, with Libya paying up for the Lockerbie bombing they never committed, renouncing terrorism real or accused, and pursuing - if slowly - political reforms. In return, UN sanctions were ended, diplomatic relations were briefly possible, and there was an opening of the oil sector to outside profits. It didn't all have to go to Libya's people anymore.

Everyone remembers the BP lobbying to send "Lockerbie bomber" al-Megrahi home in order to keep the Libyans happy and secure off-shore exploration rights. Everyone remembers the flak they took last year, on top of their gulf oil spill disaster, when Mr. Megrahi did not die (or resurrect his appeal) within three months. They were despoiling nature AND making money in shady deals that freed terrorists, and people didn't like it.

Well, the companies didn't like that. How could they be happy with the bind dealing with Gaddafi's regime put them in? It was the only way to get at the oil, working with the internationally recognized government - and was losing vogue for some reason well before the war broke out.
the final straw, as Susan Lindauer noted in a worthwhile article, a development I can't otherwise verify but that makes enough sense I'll offer it for consideration.
About July, I started hearing that Gadhaffi was exerting heavy pressure on U.S. and British oil companies to cough up special fees and kick backs to cover the costs of Libya’s reimbursement to the families of Pan Am 103. Payment of damages for the Lockerbie bombing had been one of the chief conditions for ending U.N. sanctions on Libya that ran from 1992 until 2003. And of course the United Nations forced Gadhaffi to hand over two Libyan men for a special trial at The Hague, though everybody credible was fully conscious of Libya’s innocence in the Lockerbie affair. (Only ignorant politicians trying to score publicity points say otherwise.)

Knowing Gadhaffi as well as I do, I was convinced that he’d done it. He’d bided his time until he could extort compensation from U.S. oil companies. He’s a crafty bastard, extremely intelligent and canny. That’s exactly how he operates.
Last October, US oil giants— Chevron and Occidental Petroleum— made a surprising decision to pull out of Libya, while China, Germany and Italy stayed on, signing major contracts with Gadhaffi’s government.
Were they walking away from the oil, or from the regime atop of it? If the latter, how long did they plan to be away?

If the United States was waiting for a switchover, they knew when it happened, and it was almost automatic. The violent revolt started Feb 16, more or less, and nearly half the nation's cities and military equipment was in rebel hands by Feb  21 or so. On February 21, the Deputy ambassador to the UN decided to steal his post and hand it over to the unformed new government. Somehow his boss, the ambassador, and the rest of their staff, agreed, and somehow the US and the UN at large let them, encouraged them, and gave them hugs.

At the level of diplomatic recognition, Libya had just suffered a coup, its diplomats ecognized as representatives of "the Libyan people" as opposed to its (old) government that appointed them, soon asking someone to bomb their old bosses into history. The leaders of the emergent rebel council were primarily US and UK-educated "free market" activists. Recognized in a flash, in spirit if not on paper.

Only the problem of the reality inside Libya stood in the way, and thus we've had five months of increasingly intense bombing of Libya's cities to make that fit the cartoonish notions we formed in February.

Anyway, the oil hasn't started flowing yet, and that's been affecting the world economy. From there, I'd like to pass on a conversation I had at the JREF forum, on "Gaddafi's Useful Idiots," started by member Virus, owned by me. This conversation with member McHrozni was a sidetrack there. Lindauer's word would never play at the JREF, so I cited instead the Wall Street Journal.
Virus: How much oil has NATO stolen so far?

Caustic Logic: I never used the word steal, and it's only half-appropriate. "NATO" doesn't put it in a bag and walk away. But they serve the interests of theire home governments, who serve the interests of their oil companies.

Obviously the oil stays in the ground - of a country - with a leadership that decides the terms under which it's extracted. That's the part that's pretty well decided will change, and one of the few things the top rebel TNC leaders have in common is a known speciality in free-market economics, privatization, hostile takeovers, etc., earned in the US and UK mostly.

But why regime change? See below...

theprestige: If oil were a factor, why not quietly stay out of it? How has prolonging the conflict and reducing the chances of a decisive conclusion improved the belligerents' access to Libyan oil, either now or in the future?

Caustic Logic: In the short term, it's driven prices up, which helps some but hurts economies in short and mid-term, etc. (as I gather). So they take a hit, tap into the reserves to ease the pain. Why? Is there some big gain to offset it?

Yes. The main point is questioning the bolded part. To keep access like the West has had, in experimental form since 2003, indeed no disruption would be easiest. But it's more than just access itself, it's the quantity, quality, nature, and context of that access that also factor in. These are big reserves we're talking about, close, potentially important, and every downside is multiplied by that scale.

What are the problems? Perception of working with or abetting a dictatorial and terrorist regime. Being forced (or attempted to be) by Tripoli to give a cut back to cover their expenses settling the Lockerbie case. That's context. The more important economic factors, per the Wall Street Journal ("no love lost")
"Libya has gone from the world's most exciting oil-exploration hot spot in 2005 to another geologically, politically and fiscally risky also-ran," says Charles Gurdon , a North Africa expert at Menas Associates, a consultancy.
Libya kept its crown jewels off limits to foreigners. The huge onshore oil fields that accounted for the bulk of its production remained the preserve of Libya's state companies. Yet without advanced foreign technology to improve oil-recovery rates, output at these big fields gradually declined, by as much as 6% a year in some cases.
Politics continually intruded, particularly in 2009, the year the Scottish authorities released Abdel Baset al-Megrahi , the Libyan imprisoned for his role in the bombing of a passenger jet over Lockerbie, Scotland, on compassionate grounds. The Canadian government expressed disapproval at the hero's welcome Mr. Megrahi received on his return to Tripoli. Shortly afterward, Libya told Petro-Canada, a Canadian company, to halve production from its Libyan fields. Libya said the reduction was needed to make sure Libya was in compliance with OPEC quotas. But other companies weren't targeted, analysts say.
Gradually, foreign oil companies' interest in Libya faded. When Libya offered them the right to bid on exploration tracts in December 2007, half of the blocks attracted no bids.
A clutch of companies left Libya as their five-year exploration licenses began to expire, among them Chevron Corp., BG Group PLC and Australia's Woodside Petroleum Ltd.

The bolded are among the things you can expect look to change under the new government. Not that it's a motive for war, or a motive to be too trusting of flawed rebel reports that take us there. It's just a predictable and very positive side-effect.

And lest anyone say it must be about more than oil, of course it is. There's also water privatization (GMMR), nipping pan-Africanism and keeping the continent safe for AFRICOM, privatizing the massive state services currently (or 'til recently) enjoyed by most Libyans, opening up the state-owned and debt-free central bank (assets frozen by western powers, controlled by the freezors), and perhaps most important setting an example for other would-be challengers of Western hegemony.

McHrozni: If the west was after easy oil, aiding Quackdaffi would be the most prudent course of action. Why wasn't that pursued? Please come up with something plausible and specific.

Caustic Logic: I did. See above. He was keeping too much back for the people of Libya, refusing access to most of it, tossing out strange terms they weren't happy with, and companies were giving up and leaving. They'll get interested again as soon he's gone.

That "oil interests would have us do nothing" canard is getting real old and thin, but everyone seems to buy it anyway. Anything to convince oneself there logically cannot be any ulterior motives here, in the one alleged gov't massacre of 2011 we're hell-bent on punishing to oblivion...

McHrozni: If I add a condition that the explanation must not be based on fiction, will you see that as moving goal posts?

Caustic Logic: On top of completely missing the explanation when asking for an explanation, I would consider that silly move akin to trying to hide the goal posts under a paper napkin. Do you have any proof Mr. Chazan's article, published in the Wall Street Journal April 15, is a work of fiction?

"Libya has gone from the world's most exciting oil-exploration hot spot in 2005 to another geologically, politically and fiscally risky also-ran," says Charles Gurdon, a North Africa expert at Menas Associates, a consultancy.
It seems to me that the Arab spring damaged oil interests to a considerable degree.

Caustic Logic: No, the problems cited were unfolding in 2008 and so, not after the Arab Spring.

McHrozni: I'm not buying the subscription to get the article. Why don't you cite something I can get for free? If it was obvious it should be everywhere, no?

Caustic Logic: The link I gave to a re-posting that's available for free. That's why I used that instead of a verifiably primary source. It's a small gamble that's usually worth it. Either way, do you have any evidence that the article is fiction-based? Is the growing rift between Tripoli and big oil that preceded the civil war made-up nonsense, or does Chazan maybe have a point? Just how big the point is is another issue - first, is it even a valid observation?

If not, why not?

McHrozni: I didn't see it then, can you re-post it please?

Caustic Logic:It was post 128. http://www.marketwatch.com/story/for...bya-2011-04-14

McHrozni: Thanks. Indeed, telling.
At the same time, companies that had made such expensive commitments in Libya'sEPSA-IV licensing rounds were facing a big problem: there was little oil. Firms drilled nearly 600 wells in Libya from 2006 to 2009 and made just 27 oil discoveries, mostly small, according todata from the Organization of Petroleum Exporting Countries.
While probably not based on fiction, it's also a fact that the article clearly states that Quackdaffi and his quacky state was only part of the problem.

Caustic Logic: I predicted you would do that - that article is full of facts that point one way and characterizations that point another. Now go back and look at where they were allowed to drill and not allowed. Is this an example of Gaddafi's system limiting foreign oil companies, in such a way as might be fixed with regime change, or is Libya almost out of oil, to the point where no one cares?

Or was I misreading the counter-point? If Gaddafi's only part of the problem, what in your mind is the remainder, or the large part you think you've identified? Low oil reserves, poor drilling techniques, what?

McHrozni: A bit of both. Libya certainly isn't as full of oil as some suggest, and Quackdaffi is, well, Quackdaffi and abuses what power he has for his own good. Certainly bad, but also quite certainly not worthy of a military intervention - especially not worthy of one where you'll have little say about what happens in the country after your side wins.

You were implyingthat the intervention happened because of oil interests, right?

Caustic Logic:
A bit of both. Libya certainly isn't as full of oil as some suggest,
Not to argue further down this side-track, but you haven't shown that and I still suspect oil bulk IS there as always and IS therefore a factor one can't help considering if one considers the factors at stake.
You were implyingthat the intervention happened because of oil interests, right?
In part only, I should think. I agree a gripe like that is no cause for war, or at least not strong enough a one to have pushed near as hard as they have. I'd guess that it would go into a mix of considerations.

There are a host of other issues, economic, political, geo-strategic, by which the overall mood towards Libya would be measured. Would we mind if it fell under a bus? Should we give a little shove, a big shove?

Not to argue further down this side-track, but you haven't shown that and I still suspect oil bulk IS there as always and IS therefore a factor one can't help considering if one considers the factors at stake.
Believe what you want, it's a free medium.
There are a host of other issues, economic, political, geo-strategic, by which the overall mood towards Libya would be measured. Would we mind if it fell under a bus? Should we give a little shove, a big shove?
If oil interests were crucial, a big shove would be called for, to ensure the control of the interests. This isn't what happened.

And I was happy to leave it there. McHrozni can believe we aren't really shoving to topple the government in favor of a specific replacement. And if we were, it wouldn't be about oil, since we were already doing fine drilling there, until this war started for noble reasons and stopped the insane profits. And the oil was running out anyway, or something. I can agree to disagree with that, and even let him have the last word.
Update Sept. 4:
Glenn Greenwald, a strangely perceptive and incisive commentator for being American, had this same line of thought under control back in June at Salon. "In a pure coincidence, Gaddafi impeded U.S. oil interests before the war." Actually, the meat of that is a separate, highly-quoted article from the Washington Post, which said in part:
even before armed conflict drove the U.S. companies out of Libya this year, their relations with Gaddafi had soured. The Libyan leader demanded tough contract terms. He sought big bonus payments up front. Moreover, upset that he was not getting more U.S. government respect and recognition for his earlier concessions, he pressured the oil companies to influence U.S. policies.
By November 2007, a State Department cable noted "growing evidence of Libyan resource nationalism." It noted that in his 2006 speech marking the founding of his regime, Gaddafi said: "Oil companies are controlled by foreigners who have made millions from them. Now, Libyans must take their place to profit from this money." His son made similar remarks in 2007.
Yet when representatives of the rebel coalition in Benghazi spoke to the U.S.-Libya Business Council in Washington four weeks ago, representatives from ConocoPhillips and other oil firms attended, according to Richard Mintz, a public relations expert at the Harbour Group, which represents the Benghazi coalition. In another meeting in Washington, Ali Tarhouni, the lead economic policymaker in Benghazi, said oil contracts would be honored, Mintz said.

"Now you can figure out who’s going to win, and the name is not Gaddafi," Saleri said. "Certain things about the mosaic are taking shape. The Western companies are positioning themselves."

"Five years from now," he added, "Libyan production is going to be higher than right now and investments are going to come in."

1 comment:

  1. But the country had a couple of remaining bright spots, including Africa's largest proven oil reserves, an oil industry positioned just across the Mediterranean Sea from western Europe, and a reported $113 billion in foreign currency in mid-2014, according to Al Hayat. This was down from the $321 billion in reserves from before the country's 2011 uprising but was still enough to ensure that salaries would be paid and that the country's oil infrastructure would continue to function. According to the Times report, the Central Bank now has around $100 billion in reserves.

    "So long as Gaddafi is in power, NATO and its coalition partners must maintain their operations." So states the open letter published by European heads of state earlier this month. The preliminary report from the Libyan International Contact Group, broadcast from Doha, made clear that a continuation of the current conflict is unacceptable. Policy differences apparent in NATO member states have resulted in a variety of actions being taken to progress the situation - airstrikes are losing their effectiveness and have been doing so for weeks. Recent developments point to a new phase of the conflict and a hardening of opinion in parts of the alliance.

    The recognition of the National Transitional Council by the contact group is key, and provides a way forward to either de jure partition (rather than the current de facto state) or more likely opens up an option for post-conflict reintegration. The formation of a rebel fighters fund from confiscated regime assets is currently under assessment, and although the legality of providing such a fund is not yet known, it would provide an important financial boost to what is increasingly being seen as a government-in-waiting. Military officers from the UK and France on the ground in an advisory role will improve NTC forces' effectiveness, and UAV strikes have been approved by the US. 22nd April 2011

    As the former leadership crumbled under the weight of a six month-long bombing campaign, banks and state-owned companies were raided by new Western approved officials brought in to take over.  In those dying days of the Gaddafi era, they endeavored to rid the country of its vast wealth, channeling much of it to foreign accounts where monies are still held today.


    According to academic Derbesh, President Obama is fulfilling his Democratic Party’s obligation to strengthen Hillary Clinton’s campaign. “After all, Clinton was the one who convinced Obama to go along and champion the war on Libya through visits to France and England. Libya’s case will come up during the election, so this is one way to combat any negative campaigning using Libya, which appears to be Clinton’s weakest link as secretary of state, considering Syria’s war has the support of both parties, and so can’t be used against her by her Republican opponent.”


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