April 1, 2010 / 9:24 AM / 9 years ago

FACTBOX-Political risks to watch in Libya

RABAT, April 1 (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-rich Libya.

Here are some key factors to watch.


Muammar Gaddafi has led Libya for over 40 years, longer than any living African leader. In his late 60s, he is still relatively young 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, if he died, years of instability could follow as competing clans and relatives struggle for supremacy.

The liberal-leaning Saif al-Islam, 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 Islam.

What to watch:

- Whether Islam, who has no official government position, accepts to become Head of Social Popular Leadership, potentially making him the country’s second most prominent figure. Analysts say he turned the job down last year because it might still not give him the power he needs to push through reforms.


With oil money swelling Libya’s coffers after years of austerity, foreign firms are jostling for billions of dollars of potential deals for housing, transport infrastructure, telecoms and public services.

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 going nowhere 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.

Switzerland has failed to mend ties that broke down after the arrest of another son of Gaddafi, Hannibal, in Geneva in mid-2008.

On March 3, Libya imposed a trade and economic embargo on Switzerland that effectively sounded a death knell for Swiss business interests in the desert country.

Libya showed it was still ready 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.

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 who are diversified enough to spread their risks.


Gaddafi made up with the West to end a boycott that was running the economy into the sand, but has struggled to forge a new vision for Libya since sanctions ended in 2003.

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.

Libya has no clearly defined economic policy. Gaddafi’s promise to scrap corrupt government ministries and hand oil wealth to Libya’s citizens remains unfulfilled.

Saif al-Islam has commissioned successive reform plans from Western consultancies but their free-market vision is being resisted by the powerful old guard that benefits from centralised provision of goods and services.

Relations with the West are still prickly and the government has readily used Libya’s growing economic clout to punish foreign states deemed to have slighted the Libyan leadership.

Yet analysts say Gaddafi’s foreign policy is dominated by pragmatism. Fearful of renewed isolation, he has improved ties with the U.S. and European Union while keeping good relations with Russia, China, Brazil and Iran.

Things to watch:

- Any sign that Saif al-Islam’s reformist camp is losing influence. This 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.

- Unresolved differences with the West might boil over into more diplomatic stand-offs. Gaddafi has said Libya hoped for a bigger payback for the concessions it made to end sanctions and is resisting calls for more political openness and a freer press. Western leaders risk a political backlash for striking up chummy relations with Libya in the hope of winning lucrative business deals.


Firms including Exxon Mobil (XOM.N), Occidental (OXY.N), BP (BP.L) 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 disapppointing 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.

Reporting by Tom Pfeiffer; editing by Peter Apps

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