Libyan chaos could threaten Mediterranean economy

February 22, 2011

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.

Comments

Greedy oil cartel members will quickly capitalize on high prices to capture a windfall. Thus, I don’t think that oil supplies anywhere will be threatened. And as a bonus, those producers will be applauded for “stepping up to the plate” and being a stabilizing force on the world economy, in a time of need. It’s a perfect play.

Posted by SteveC | Report as abusive
 

Play on people >you are what you eat

Posted by Ismailtaimur | Report as abusive
 

Oil supplies on the planet are not unlimited–the reason oilman George Bush used his presidency to invade a big oil producer unrelated to 911–US Companies ran out of accessible supplies and needed a new source. Tensions in the Middle East between the poor and the autocratic elite and their well-paid supporters have been building for decades–the results now painfully apparent. And there is the Inconvenient Truth of global warmin–caused by carbon-based fuels. So now we have the Perfect Storm unfolding before our very eyes. Don’t count on oil supplies or prices ever stabilizing again. Instead you will be forced to transition–evolve–to energy sources and production with a Green Footprint. Or else.

Posted by contrarymary | Report as abusive
 

¨Despite its massive failings, Libya, as other similar countries, has won praise from the International Monetary Fund.¨

It’s too bad that Ms Galani didn’t flesh this one out a little more. I suspect that the IMF’s focus is mainly on debt levels for any given nation, and obviously one that lives within its means, as most oil nations will, gets a thumbs up from them. So people reading that statement will gain a prejudiced view of the IMF as if it is complicit in supporting corruption in Libya, while that could hardly be the case. The IMF is merely a banker of last resort, as far as I can see, unless the institution is more politicized than I have been led to believe.

Posted by ogobeone | Report as abusive
 

This seems a very fair and even analysis and I doubt if the IMF comment will change any opinions about the debt merchants the IMF protects as last resort. The article and comments seem to ignore the fact that six million residents of Libya must do something, besides pounding sand, to improve their lives and add assets to Libya or to Qdufus and sons. This article has some nice tid bits of economic info that the general public should be aware of; especially those who don’t know that Tripoli has been a pirate haven for generations. Keep reporting Ms. Galani.

Posted by Theysay | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/