Libya’s Return: Between Change and Continuity

Libya’s Return: Between Change and Continuity

Theme: Libya has come a long way towards its international rehabilitation in the last three years. The reforms implemented so far have been limited and have focused on the economic sphere, in order to attract greater foreign direct investment, especially in the oil sector. These reforms should not be expected to come alongside significant political liberalisation.

Summary: Libya has come a long way towards its international rehabilitation in the last three years. In early 2003, few people would have predicted the changes which were about to happen: the resolution of the main international disputes affecting Libya, including the Lockerbie case; the lifting in September 2003 of sanctions imposed by the United Nations in 1992 and 1993; Libya’s announcement, three months later, that it was relinquishing its WMD programmes; the subsequent gradual removal of US bilateral sanctions, including trade, diplomatic and military sanctions; the decision by the European Council in October 2004 to lift all economic sanctions and the arms embargo which has been in place for 18 years. This rehabilitation process has come linearly and without major upheavals, something which has not always been the norm in Libya’s relations with the rest of the world.

Analysis: Libya’s meteoric transformation, following long years of conflict and distrust with Western countries, has translated into intense activity at various levels. Throughout 2004, Colonel Muammar el-Gaddafi received the visits of various European leaders (Tony Blair, Silvio Berlusconi, Gerhard Schröder and Jacques Chirac) in order to strengthen diplomatic and, above all, economic relations. Gaddafi himself visited Brussels in April 2004, in what was to mark his definitive recognition as a credible leader, whose past excesses and erratic policies were forgiven. The economic and commercial opportunities currently offered by Libya, following years of sanctions and with huge revenues from hydrocarbons, are considerable and have a highly lucrative potential.

The reforms implemented so far in the Maghrebi country have been limited and have focused on the economic sphere, in order to attract greater foreign direct investment. However, there are still a number of obstacles to full normalisation of Libya’s foreign relations. These obstacles are linked to the nature of the regime and the mutual distrust generated by the period of isolation. It is worth asking what changes have actually taken place within the country, and whether they are sufficient to tackle the huge challenges facing the Libyan economy and society. Only a new climate of cooperation not limited to economic and security issues would ensure the development of Libya’s constructive potential, both at home and abroad.[1]

Libya’s New Role in the World
The Libyan leader’s decision to resolve the disputes with Western countries and dismantle his non-conventional weapons programmes came shortly after the Iraqi regime was overthrown, as a result of the US-led invasion of Iraq. Gaddafi’s move was interpreted as a preventive measure so that his regime would not suffer the same fate as that of Saddam Hussein. At that time, the US Administration was interested in presenting Libya’s transformation as an example of the validity of its pre-emptive war doctrine. However, despite the influence which Washington’s policy might have had, Tripoli had already been more conciliatory towards the West and had made previous attempts at normalising its relations with the US and the EU several years before the arrival of George W. Bush to power.[2]

In a report in 1998, the US Department of State admitted that ‘Libya has not been implicated in any international terrorist act for several years’. Gaddafi was quick to condemn the 11 September 2001 terrorist attacks on New York and Washington, and he declared that the United States was perfectly entitled to undertake reprisals against whoever committed those acts. Jihadi terrorism also represents a threat to the Libyan regime, which has actively participated in its eradication. Libyan intelligence services have supplied their US and UK counterparts with copious information about al-Qaeda and other fundamentalist groups based in the Islamic world. In fact, the first international warrant for Osama bin Laden was issued by Libya in March 1998, two years ahead of the United States.

Libya’s cooperation with the United States has triggered a turnaround in their relations. On 15 May, the US Administration announced that it was removing Libya from the list of States sponsoring terrorism and that it was restoring full diplomatic relations with Tripoli, including the exchange of ambassadors. This decision, made after more than 25 years of non-existent ties, paves the way for a possible visit by the Secretary of State, Condoleezza Rice, to the Jamahiriya. This is the first case of a nation being removed from the US list of terrorism sponsors without there first having been a regime change or that state ceasing to exist.

Libya has made a U-turn in its foreign policy in recent years, opting to strengthen ties with Africa, to the detriment of relations with other Arab countries, and largely pulling out of the Arab-Israeli conflict. Tripoli has presented itself as a major promoter of the African Union (AU) since its creation in July 2002 as heir to the Organisation of African Unity (OAU), and has mediated in conflicts such as Darfur, in Sudan. Furthermore, although Gaddafi condemned the military occupation of Iraq, his position was considerably more tepid than one might have expected from him based on past experience. Accordingly, the Colonel aimed to acquire a more central role and to improve his image abroad, portraying himself as a conciliatory element on the turbulent international stage.[3]

First and Foremost… the Economy
Libya’s economy depends almost exclusively on hydrocarbons. The improvement in oil revenues in recent years as a result of price hikes has afforded Libya sufficient cash liquidity (according to the International Monetary Fund, foreign reserves will exceed 56 billion dollars by the end of 2006)[4] to implement a wide range of economic policies to encourage the entry of foreign companies. The National Oil Company (NOC) accounts for around 95% of the country’s foreign currency revenues. Libya is the second-largest oil producer in Africa, with an estimated current production of 1.65 million barrels per day (an amount well short of the 3.2 million barrels per day which it produced in the early 1970s). Furthermore, it has proved oil reserves of over 39 billion barrels, which is equivalent to 40% of the total proved reserves in all Africa.

Traditionally, the Libyan oil sector has been managed in an autonomous fashion and quite efficiently. Libya now needs to attract major investment in the sector that is so vital to an economy which has so far not managed to diversify its sources of revenue. In fact, the survival of the regime itself could hinge on its capacity to produce more oil and gas. The government hopes to increase its oil production to 3 million barrels per day between now and 2015. To do this, it is estimated that Libya will need to attract more than 30 billion dollars in investment and modern technology in order to overcome the negative effects of more than two decades of embargoes and sanctions.[5]

The pace of concession of exploration and production licences has accelerated in the last two years, as competition has also mounted between international oil companies vying to win concessions tendered by the NOC. The last two licence auctions were transparent and afforded exploration and production rights to US oil companies (ExxonMobil, ChevronTexaco and Oasis Group companies) and companies of other nationalities, mainly European and Asian.[6]

Before that, the Libyan authorities had expressed an interest in welcoming back US oil companies, whose presence in Libya was very significant until the Reagan Administration ordered them to pull out in 1986, and which nevertheless maintained their concessions in Libyan territory. In the round of licence concessions in October 2005, some countries –such as China, India, Indonesia and Japan– managed to gain a foothold in the Libyan market for the first time by offering highly competitive conditions, in what some described as an ‘entry toll’.

The increasing presence of the business community in Libya is not translating into a notable increase in opportunities to reach new deals. According to an influential European diplomat in Tripoli, ‘none of the large contracts [his country’s] companies have been pursuing was concluded despite careful preparation, keen negotiation and strong expressions of support’. This phenomenon has come as the result of low public expenditure by the central and local governments, despite their high revenues. One explanation could be the existence of major uncertainties and disagreements among the Libyan elite over how to proceed. Another possibility is that the Libyan authorities are waiting for the arrival of more US companies and the restoration of diplomatic relations with Washington to benefit from higher levels of competition between countries wishing to do business, either between the United States and the EU, among European countries themselves or even among Asian countries (the former President of China, Jiang Zemin, made an official visit to Libya in 2002). For such a purpose, in 2004 Tripoli requested its entry to the World Trade Organisation (WTO).

The Internal Situation
Despite not having an official position, apart from being the leader of the al-Fateh Revolution, Colonel Gaddafi remains at the helm of the country after more than 36 years in power. The Jamahiriya (state of the masses) system, created by him in line with the ‘third universal theory’ which he expounds in his Green Bookenables him to control the entire political system and prevent the emergence of any other centre of power, however modest. All changes introduced in the system have been aimed at consolidating his authority. It is worth noting that there is no clear mechanism for his succession and, if this continues, the post-Gaddafi era is likely to begin with a power struggle between the various groups with competing socio-economic and political interests.

The appointment of Shukri Ghanem in June 2003 as Prime Minister was interpreted as a triumph of the regime’s reformist line. Ghanem, a liberal technocrat and advocate of the market economy, became the standard-bearer of economic reform –such as the privatisation of certain public companies and the reduction of state subsidies– as well as of greater transparency in the political system. The decision to appoint him Prime Minister improved Libya’s image at a time when the regime sought international recognition. Nevertheless, many reformist initiatives proposed by Ghanem were torpedoed by the regime’s hardliners, specifically by the influential revolutionary committees and their strongman, Ahmed Ibrahim, who sees himself as the heir of the revolutionary ideological line and as the leader’s successor.

Gaddafi’s decision, in early March, to replace Ghanem with a new Prime Minister, Baghdadi Mahmoudi, less enthusiastically in favour of reform, is a victory for the old guard and for advocates of the sui generis and disaccredited system of ‘people’s power’ versus more pragmatic sectors.[7] The change could also signify a repositioning of the candidates to succeed Gaddafi (who is aged 64), which would imply a loss of influence for his son Saif al-Islam, more in favour of introducing certain reforms in the system and who had so far seemed to be the unofficial candidate for succession.

In June 2003, Gaddafi appeared before the General People’s Congress to defend the dismantling of the huge and hyper-atrophied public sector, as well as the start of a broad-reaching process of privatisation. His statement sparked considerable interest outside Libya, although it has not yet translated into specific measures and only a small number of companies have actually been privatised. Recognition of the need to privatise (‘expanding the base of property owners’, in the official discourse) implies recognition of the failure of the economic model in place since the 1970s, as well as the insufficiency of the reforms implemented since 1987. At the same time, abolition of one of the maxims of the Green Book, whereby workers are ‘partners, not wage-earners’, opens the door to changes in other revolutionary principles.

Relations with the EU
Despite Libya’s conversion in recent years, its relationship with the EU is still somewhat anomalous. There are a number of mutual interests linking Tripoli and Brussels, such as trade relations, immigration, the fight against terrorism, telecommunications, transport, health and education services, financial services, legislative reform, tourism, agriculture and fisheries, infrastructure, and environmental protection. Several European countries maintain close commercial ties with Libya, and they are its main partners. However, Libya is the only Mediterranean country which does not have formal relations with the EU since, among other reasons, the European Commission does not have a permanent delegation in Tripoli (although since May 2005 it has a non-resident Ambassador).

Libya currently has the status of an observer country in the Euro-Mediterranean Partnership (EMP or Barcelona Process), and as such sits in on high-level political talks. In 2004, Libya declared its interest in becoming a full member of the EMP, although it has not yet formally applied. Together with Syria, Libya is the missing link in the EU’s project for creating a Euro-Mediterranean free trade area by 2010. The reason given by the Libyan authorities for its absence is that the country was not present at the drafting of the Barcelona Declaration in 1995, since it was still subject to international sanctions. They also say that Libya cannot participate in an initiative whose final purpose is to create ‘a zone of peace, stability and security in the Mediterranean’ while one member continues to occupy the territory of another (in reference to Israel’s occupation of the Palestinian Territories). In fact, Libya knows that it can achieve much of what it needs from Europe bilaterally without committing itself to the Barcelona acquis.

The recent visits by major European leaders to Tripoli came despite Libya not being a member of the EMP and not having signed the association agreement, unlike almost all other southern Mediterranean countries. The line taken by the European Commission of implementing a realistic, conditional and progressive approach strategy towards Libya, although perhaps necessary in the current conditions, runs the risk of offering Tripoli an à la carte version of the EMP. In some European circles it is believed that Libya’s active involvement in the 5+5 Group (which includes the five Maghrebi countries –Algeria, Libya, Mauritania, Morocco and Tunisia– and five European countries –France, Italy, Malta, Portugal and Spain–) serves for it to become gradually involved in political dialogue, as a previous step to its full integration into the EMP. However, the European Commission recalls that the EU has 25 member countries. For its part, Libya continues to prefer the framework of the 5+5 Group, and would even favour its expansion to include both Egypt and Greece.[8]

In practice, Libya already enjoys all the advantages of a free trade area with the EU, since its energy exports are not subject to tariffs. If the EU’s ultimate aim is Libya’s full integration in the EMP it will need to offer it incentives relating to access to European technical aid, as well as the possibility of participating in regional infrastructure projects or joint initiatives to support development in Africa. Once it is defined more clearly, the European Neighbourhood Policy (ENP) could be used to strengthen cooperation between the EU and Libya. If Tripoli decides to show signs of a rapprochement towards Israel (beyond allowing Jews of Libyan origin to visit the country) in order to strengthen the recently restored diplomatic ties with the United States, the Barcelona Process may offer the right framework to sit at the same table without needing to establish full diplomatic relations.

For years, Libya has been a destination for many African emigrants. In recent times it has also become a country of transit for those seeking to reach Europe illegally, on board vessels whose destinations are usually the Italian islands of Lampedusa and Sicily. It is estimated that there are between 700,000 and one million sub-Saharan immigrants in Libya (whose population is 5.5 million). The EU has proposed cooperating with Libya in the struggle against illegal immigration via training programmes, asylum application management and social awareness initiatives. Despite Tripoli’s interest, there has not yet been much progress in this field. The decision of the European Council to lift the weapons embargo on Libya came mainly due to pressure from Italy to supply equipment to monitor and control the borders of its Southern neighbour.

According to a report by the European Commission,[9] Italy has financed the repatriation of immigrants from Libya to their countries of origin, as well as the construction of detention camps for illegal immigrants, and has offered free training to the police and supplied material for border control. The project of creating camps for asylum seekers on Libyan soil was proposed by Italy and other European countries, although it does not meet with unanimous approval in Europe. Various observers call into question the compatibility of such camps with the respect for human rights. According to Amnesty International, ‘people forcibly returned to Libya from Europe risk degrading detention conditions and further expulsion to countries where they may face imprisonment and torture’.[10]

Relations with Spain
As regards Libya’s relations with Spain, in 2005 Spanish imports from Libya totalled more than 2.28 billion euros, whereas exports amounted to just 178 million euros. These figures reveal a trade deficit of more than 2.103 billion euros. Almost all imports (98.2%) were fuels and lubricants, with Libya supplying close to 10% of Spain’s imported crude oil.[11]

Spain has a limited business presence in Libya, focused mainly on the oil industry. In 2004, Repsol YPF obtained a net production of close to 7.8 million barrels of oil and is the main operator of the El Sharara field in the Murzuq basin, where new light sweet crude oil fields have recently been discovered. Repsol YPF also owns gas and oil exploration contracts in the Gulf of Sirte. Enagás is another company with interests in Libya, specifically in importing liquefied natural gas (LNG) from the Marsa el Brega plant, whose production capacity is set to increase substantially, with Spain being one of the customers interested in acquiring part of the increased production. Other major players with interests in Libya are: Indra, which has signed a contract to modernise Libya’s automatic civilian air traffic control systems; Navantia, which has bid for the concession to build five coastal and ocean patrol vessels; and Eurocopter España, which hopes to win the tender to modernise Libyan helicopters.

The Libyan government has implemented economic diversification plans and infrastructure projects. The will to diversify its supplier base should boost Spanish investment in various areas. There is significant potential –although not without difficulties– for implementing infrastructure projects and increasing capital goods exports and raw materials or industrial semi-manufacturing goods exports. The country’s deficient infrastructure requires ploughing in major investments following the lifting of sanctions for the modernisation of the road network, desalination plants and power plants, tourist infrastructure, aviation and irrigation systems, to name but a few.

At the strategic level, Spain has important interests in Libya due to its geographical proximity and its location in a border region, not without serious current and potential problems. Libya is an important country for stability in the Maghreb and for regional security, and it is therefore necessary to intensify bilateral contacts and integrate it into multilateral structures where it can play a more constructive role in this regard. An adequate framework for normalising Libya’s relations with its neighbours, including Spain, is its full integration into the Barcelona Process. In Spain’s favour is the absence of recent conflicts or of a colonial past with Libya (unlike other European countries such as Italy, the UK, France and Germany). For Spain, it is important to boost bilateral relations and to partly correct its high trade deficit with Libya.

Limitations on Full Normalisation
There are still many obstacles linked to the nature of Libya’s political regime which hamper the full normalisation of its foreign relations. Some recurring problems include the lack of coherence in the design and application of policies, bureaucratic red tape, the high degree of administrative discretionality, the lack of transparency, difficult access to information and the existence of an unpredictable legal system and a deficient banking system. All of these factors make the country less appealing than it could be from a business standpoint.

Companies wishing to invest in Libya face many hardships, from the absence of consolidated trade regulations, reliable contracting procedures and legal and financial safeguards to the opacity of the decision-making process and lack of reliable statistical data. It is unlikely that all of these obstacles will disappear in the short term, although Libya will try to make some gestures towards boosting the confidence of foreign investors.

One issue which hampers Libya’s foreign relations is the case of the five Bulgarian nurses and the Palestinian doctor who were imprisoned in February 1999 and later sentenced to death, accused of spreading the AIDS virus to hundreds of patients in the Benghazi children’s hospital. The EU and other countries have repeatedly expressed reservations as to the trial process. According to scientific research, the AIDS epidemic at Benghazi began one year before the incorporation of these members of staff. Although the Supreme Court in Libya overturned the death sentences in December 2005, this matter is still generating tension between Libya and the international community, especially on the eve of Bulgaria’s entry into the EU. Negotiations are currently underway to find a solution to this crisis which should save as much face as possible for the Libyan authorities domestically, by granting international aid to the patients affected by the AIDS virus and boosting scientific cooperation with Europe on health issues.

Many political observers and human rights activists claim that Libya has made significant political concessions to Western countries, but almost none to its own people in terms of political reform and improving the human rights situation. The official EU position is that these two aspects are essential for the development of relations with Libya. However, some Libyan activists consider that these stated principles do not correspond with Europe’s actual current policies on Libya and accuse the EU of hypocrisy. At all events, internal reluctance in Europe to reward the Libyan regime will continue as long as it does not show clear signs of improving its track record on freedom and human rights.

Conclusions: Now that Libya has received the certificate of rehabilitation from the international community, it is not clear what incentives Colonel Gaddafi might have for applying a broad programme of reform which could generate the much-vaunted new political and economic climate. There is no reason to believe that the regime will put an end to its practice of making continuous changes in personnel and in the various institutions in order to prevent the emergence of new potential power centres. As long as no sweeping institutional reform is implemented, the improvement in relations between Libya and the West will focus on boosting investment in the oil sector, where competition is increasing between US and EU companies.

Regardless of the pace and scope of economic reform, these are unlikely to be accompanied by any significant political liberalisation. For its part, ‘Europe and its member states are reacting by exploring the commercial relationship [with Libya] without really questioning the underlying ideological assumptions or their implications for European and Mediterranean security’.[12]

Libya might appear to be undergoing a new revolution. The question is whether or not there are enough revolutionaries to carry it through to the end. It is not yet clear whether, as well as developing its infrastructure, Libya will be able to adapt its superstructure to take on the new international role to which it aspires.

Haizam Amirah Fernández
Senior Analyst, Mediterranean and Arab World, Elcano Royal Institute

[1] Michele Dunne, ‘Libya: Security is Not Enough’, Carnegie Policy Brief, nr 32, October 2004.

[2] Ronald Bruce St John, ‘Libya is Not Iraq: Preemptive Strikes, WMD and Diplomacy’, Middle East Journal, vol. 58, nr 3, summer 2004.

[3] See an earlier analysis on these issues in Haizam Amirah Fernández, ‘La rehabilitación de Libia: más allá de Lockerbie’, Analysis of the Elcano Royal Institute, nr 108, 18 September 2003 (available in Spanish at

[4] IMF, Country Report, nr 06/136, April 2006.

[5] Economist Intelligence Unit, ‘Libya: Country Report’, January 2006.

[6] Selwa Calderbank, ‘At Last, A Real Energy Sector Strategy for Qadhafi’s Revived Hydrocarbons Oasis’, African Energy, nr 94, January 2006.

[7] ‘Kaddafi’s Security, Continuity and Reform Agenda: Why Ghanem Was Removed from Prime Ministry’, The North Africa Journal, nr 183, 23 March 2006.

[8] Interview with a senior representative of the Libyan Foreign Affairs Ministry, February 2006.

[9] Technical Mission to Libya on Illegal Immigration, European Commission, December 2004.

[10] Amnesty International, ‘EU-Libya Cooperation: No Safeguards for Refugees’, 12 April 2005.

[11] Figures from Spain’s Foreign Trade Institute (Instituto Español de Comercio Exterior, ICEX), available in Spanish at

[12] George Joffé, ‘Libya and Europe’, The Journal of North African Studies, vol. 6, nr 4, winter 2001.