Financial Daily from THE HINDU group of publications
Friday, Feb 13, 2004
US and the shifting stand on Libya
In an informed analysis, Flynt Leverett (The New York Times, January 23, 2004) suggests that "by linking shifts in Libya's behaviour to the Iraq war, the president misrepresents the real lesson of the Libyan case." His analysis is at variance with the stereotyped analyses by many others. Indeed, there is need to capture the changes in US-Libya relations in recent decades and relate them to the agreement.
A look at the Libyan history after Col Qaddafi took power in 1969 through a bloodless coup reveals three distinct periods. The first was from 1969 to the late 1980s, when he was riding high. During those years, as described by one expert, Col Qaddafi was driven by a `messianic complex' and wanted to rule the world even when he was stuck in a desert hole.
With access to exceptionally large financial resources, he sponsored terrorist groups across the globe. In doing so, he neither had a coherent strategy nor did he cover himself with glory. On the contrary, he would be shunned by older Arab friends and distrusted by new African counterparts. The era ended with the crash of oil prices and drop in Libyan production. However, he had done enough to strain his relations with the US.
The next period is from the late 1980s till the mid-1990s, the years of stagnation and international isolation. After the collapse of the Soviet Union, he was more vulnerable to American attacks.
The next period is the latest, from the mid-1990s to the present day. These are the years of change and attempts by Col Qaddafi to normalise relations with the world community, especially the US. Soon after coming to power, Col Qaddafi demanded the withdrawal of American and British forces from bases in Libya under their occupation since the Second World War. This was the beginning of US-Libya tensions. Col Qaddafi's sponsorship of terrorism fuelled it. By 1973, relations deteriorated further and the US withdrew its ambassador from Tripoli.
Libya's support for international terrorism was cited as the reason. The attack on the US Embassy in 1979 reduced US diplomatic presence further. The US designated Libya as a state sponsor of terrorism. By 1981, diplomatic relations had. (In recent weeks hopes have been raised of restoration of relations.)
Though the offence alleged for snapping diplomatic ties was Libya's support for terrorism, the real offence was that Col Qaddafi had challenged the US hegemony in West Asia. The US had reasons to worry about Col Qaddafi's role in the oil industry.
Col Qaddafi was a strong advocate of the use of oil as a political weapon.
Reaching its peak in October 1973, it led to the Arab oil embargo against the US. According to disclosures of the UK archives, made early this month, the US planned to take military steps to seize oil fields in Saudi Arabia, etc. Though the threat of oil embargo receded soon, the US continued to view the Col Qaddafi as a threat to its interests in the Gulf.
The other threat was the price war with oil companies. He demanded a higher share in revenues from oil companies. With a shrewd understanding of the oil market, he concentrated his efforts on Occidental Petroleum Company (OXY), an independent US outfit with no alternative sources.
OXY succumbed to his demands and agreed to raise Libya's share from 50 per cent to 55 per cent. By the end of September 1970, the first year of Revolution, other companies fell in line. It became the framework for all oil producing countries in the Gulf. More than the price increases per se, he had brought about a real shift in the balance of power in the oil industry. The Colonel had to be weakened.
The US resorted to sanctions. Commencing in 1981, the sanctions turned comprehensive by 1986. They were unilateral and not binding on others. Even as the scope of sanctions increased, they proved ineffective. Libya could escape the rigour by getting closer to Europe. Ironically, sanctions reinforced a pattern of development that was already at work since the 1950s.
Libyan oil development started in the mid-1950s. The first oil strike was made by ESSO-Libya in 1959. Libyan petroleum law and policies encouraged the growth of independent oil companies. By 1970, they contributed 50 per cent of Libyan production. By then, the US market was closed to them under a quota system that shielded the US oil from cheap imports.
Libya's geographical location made it economical to lay pipelines across the Mediterranean. Due to such a combination of politics, economics and geography, oil companies in Libya had to reach out only to the European market. Though American companies were the major partners in the early years of Libyan development, integration with Europe was greater than with the US. Sanctions skewed this imbalance further. The US was aware that unilateral sanctions were toothless. For many years its goal was to make them multilateral. But the US could never get European support. Libya made full use of the European card. When it wanted to make peace with the US, it turned to its European friends to broker peace. Now, to revert to the sanctions story.
Unfortunately for Libya, its involvement in the Lockerbie sabotage on December 21, 1988 was traumatic. The US exploited it to the hilt. It dragged Libya into a protracted legal wrangle for over 11 years.
Disregarding niceties, the US was in a hurry to hold Col Qaddafi and the Libyan government responsible for the crime and to prevail upon the UN Security Council (UNSC) to impose multilateral sanctions.The US got Resolution 731 passed by UNSC on 21 January 1992 demanding extradition of the two Libyan agents, who US investigators had established were involved in the sabotage of PanAm flight 103 over the Scottish village of Lockerbie. Libya appealed to the World Court and sought protection of its rights against the coercive action proposed by the US.
On March 31, 1992, three days after the close of oral hearing but a day before the World Court could deliver its judgement, the UNSC passed Resolution 748, which ordered sanctions against Libya. The US' pressure on Security Council members to approve the Resolution was open and intense.
The UN Resolutions demanded Libyan co-operation in establishing responsibility for the bombings, ceasing all forms of terrorist action and demonstrating its renunciation of terrorism by concrete actions. They banned Libyan aircraft flights, sale of oil equipment to Libya and froze its foreign assets.
Significantly, the US failed to get support in the UNSC for the inclusion of Libyan oil in the sanctions in spite of its clout. Europe was not prepared to commit hara-kiri. It was seen that even the UN sanctions were not effective. Sanctions were circumvented openly or covertly. Libyan investments flourished in Europe directly through joint ventures or indirectly through banks or financial subsidiaries.
The US tried to plug them through a special legislation the Iran Libya Sanctions Act (ILSA) of 1996. ILSA sought to restrain third country companies from dealing with Libya. European allies resented the extra-territorial nature of ILSA. ILSA also could not cripple Libya. It did, however, begin to hurt the oil sector.
Libya had massive investment programmes estimated at $55 billion and could not get equipment for oil recovery and expansion. Europe itself was dependent on the US for them. Col Qaddafi had to decide whether to opt for Libya's growth or stagnation. He opted for growth and decided to change his behaviour. He sent the message in surprising ways. Some observers noted that Col Qaddafi began to move away from terrorism from around 1994. By 1998 the signals were louder. He began to share information about terrorist groups and their activities with Western governments.
He closed down terrorist training camps in Libya and did not permit Palestinians to engage in political activities other than through the PLO. He introduced visa restrictions to prevent free entry. Libya was the first country to provide evidence about Osama bin Laden and request Interpol to arrest him. This was done a few months before the attacks on the US Embassies in Kenya and Tanzania.
On February 27, 1998 the World Court gave its ruling on the Libyan petition. It acknowledged Libya's right to refuse extradition of its agents and ruled that it was safeguarded by international law. However, it did go into the legality of the UN Resolutions as they had already been enforced by the UNSC.
The verdict was indeed a great legal victory for Libya. Instead of choosing to continue with the litigation, Libya appealed to the UK and the US to open political dialogue to resolve outstanding political problems. They took one more year to respond.
Another development was that though the World Court had upheld Libya's right to refuse to hand over its agents for trial, Tripoli decided to hand them over for trial. The verdict avoided the humiliation attached to extradition. Very cautiously, Libyan authorities linked it to the lifting of sanctions. The US watched with dismay the sudden rise in European-Libyan investments.Perhaps around this time, the US started secret negotiations with Libya, thoughit took five more years of negotiations to result in an agreement. It led to the lifting of UN sanctions on September 12, 2003. The agreement with US/UK came on December 19, 2003. To get back to the story of Libyan metamorphosis.
By 2000, relations improved further. In March 2000, Col Qaddafi intervened to secure the release of hostages held in the Philippines by Abu Sayyaf. He paid a ransom of $20 million. Before his intervention, Col Qaddafi secured a promise from France, Germany, Finland and South Africa that they would assist in ending Libya's international isolation.
When the attack on WTC happened on September 11, 2001, Libya was the only Arab country to condemn the act. Within two days, Col Qaddafi received a US team and shared intelligence with them. The US was observing these changes. On May 4, 2000, in a testimony to a Senate Foreign Relations Subcommittee, a senior functionary informed that Libya no longer posed a threat to the US by its role in terrorism or regional intervention.
The only concern expressed was about Libyan compliance with UN Resolutions, especially compensation to the Lockerbie crash victims. The initial offer on compensation was made in May 2002 but was worked out only in the middle of August 2003.
For the Lockerbie crash victims, Libya agreed to pay the largest ever compensation in aviation history: $2.7 billion, worked at the rate of $10 million per head. While the amount is very large, one Libyan economist explained that Libya would recover it within 20 months of resumption of oil operations!
As is evident from the above, negotiations with Libya had dragged on for five years since 1999. The course of negotiations was driven by factors not related to Iraq. Nor is there any evidence that they were influenced by it. Libya is not Iraq.
As brought out earlier, Europe's dependence on Libya is vital for its survival. European governments would not have permitted any US action against Libya. After the passing of UN Resolution lifting sanctions, the US had lost its leverage and could only drag on the issue of lifting its unilateral sanctions. The climax in negotiations coincided with the time when the US was under attack for its pre-emptive policy from most quarters in the world. The US was defensive as successive American teams had failed to produce any evidence of WMD and strained credibility about its intelligence.
The spin-doctors stepped in. If the US could finalise quickly an agreement and Libya would come clean on its WMD besides also "revealing all" about its past friends like Pakistan it could be shown as a surrender by one of the members of the "axis of evil." That would testify to the success of the US' pre-emptive policies.
Libya has been more than co-operative in disclosure and in receiving inspection teams. Col Qaddafi, who was called "mad dog of the Middle East" by Ronald Reagan, has turned a firm friend.
(The author, a former Finance Ministry official, has extensive experience in international, financial and trade issues.)
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