Libyan chaos could threaten Mediterranean economy
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
LONDON — Chaos in Libya could pose a threat to Mediterranean economies. The unrest in the oil-rich North African country, and the subsequent bloody reaction of its authoritarian regime, could soon present a serious strategic challenge for Western governments and corporate titans that recently embraced the long-pariah state.
But it is Italy, the country’s former colonial ruler, which looks set to bear the brunt of the fallout if the situation descends into uncontrolled turmoil.
Four decades of rule under unpredictable Muammar Gaddafi quite expectedly failed to deliver the Brotherly Leader and Guide of the Revolution’s vision of a “state of the masses” or “people’s capitalism”. In one of the most corrupt countries in the world, wealth from the economy, which accounts for 2 percent of global oil production, is hardly visible among the population of 6 million.
Despite its massive failings, Libya, as other similar countries, has won praise from the International Monetary Fund. The country’s relationship with Western powers deepened after U.N. sanctions against were lifted in 2003. The United States has increased its oil imports from the country, and unsavoury government dealings have helped the likes of British oil giant BP push on with a $900 million exploration contract in Libya.
The country’s strongest external ties, however, remain with Italy. Libya is a prominent feature on the Italian corporate landscape, with stakes in carmaker Fiat, banking group UniCredit and even the Juventus football team. Italian oil giant Eni has a 14 billion euro investment programme in the country, as well as supply contracts stretching to 2047. Overall Libyan oil accounts for around 27 percent of Italy’s consumption.
Threats from Gaddafi’s son that the country’s oil “will be burned” cannot be taken lightly. Even if Libya doesn’t descend into all-out civil war, it can afford a prolonged period of disruption despite its economy’s absolute dependence on oil production. The country’s net foreign assets are estimated to total $150 billion — or enough to cover 37 months of imports.
Italy’s politicians are reluctant to condemn Tripoli, but after the country’s decision to open fire on anti-government protestors, companies will have to weigh the dubious attraction of counting Libya amongst their shareholders. Energy investments could also now be threatened if sanctions are re-imposed. Meanwhile the near 2 percent jump in oil prices seems to suggest markets aren’t overly optimistic.