Eni tests Libya return as Gaddafi rolls back rebels

* Eni calls for end to Europe sanctions

* Analysts doubtful of early return by big firms

* Libya to become playground for smugglers, small traders

By Alberto Sisto and Dmitry Zhdannikov

ROME/LONDON, March 16 (Reuters) - Italy's Eni (ENI.MI)
called on Europe to abandon sanctions against Libya, becoming
the first Western firm to try to rebuild bridges as Muammar
Gaddafi is regaining control and may reopen the oil taps.

While other firms declined to comment on their return to
Libya, analysts said they believed sanctions would remain in
place to isolate Libya from big companies for months to come,
making it a playground for smuggling by little-known traders.

"The installations are in perfect shape but first we have to
make sure that the operation isn't targeted by sanctions," said
Eni's chief Paolo Scaroni, whose company produces both oil and
gas in Libya, much of which is exported to Southern Europe.

"Whatever happens, imposing sanctions is shooting ourselves
in the foot because by not taking this gas, we are not ensuring
our energy security," he said.

Gaddafi's forces have reclaimed several ports and oil
installations along the coast from rebel forces, who had won
considerable Western support when the uprising began weeks ago
and appeared to have prospects of success.

Asked if relations with Libya had been hurt, he said:
"Absolutely not, I don't consider that they have been
compromised at all. We have maintained relationships with the
National Oil Corporation (NOC), which is our main interlocutor".

The stakes are high for Italy as Eni is the biggest foreign
player with billions of dollars invested in Libya and Italy was
buying 500,000 barrels per day, or 22 percent of its oil, from
Libya before sanctions and fighting stopped exports.

Italy's Prime Minister Silvio Berlusconi had long been seen
as Gaddafi's closest European ally but called on him to step
down. Gaddafi has said he felt betrayed by former European
allies. [ID:nLDE72E0DK]

"It tells me that people were too quick to jump on the wrong
horse and it will be difficult to row back now," said an adviser
to a risk consultancy firm dealing with Libya.

"But from the practical point of view I don't see how big
companies like Eni can come back amid sanctions, even if Gaddafi
calls to bless Berlusconi," he said, asking not to be named.

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Wrapup story on fighting in Libya [ID:nLDE72F00F]

More on Middle East unrest [nTOPMEAST] [nLDE71O2CH]

Libyan oil map r.reuters.com/jem28r

Production and export graphics:

here
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LIBYA TO HONOUR CONTRACTS

Libya's government will honour existing contracts with
Western oil companies, NOC head Shokri Ghanem told Reuters on
Wednesday.

Foreign powers were initially united in condemning Libya's
leader for the bloody crackdown against the uprising.

Britain and France, growing trading partners and arms
suppliers to Tripoli until recently, called for a strong
response and French President Nicolas Sarkozy has recognised the
opposition as the legitimate representative of Libya's people.

France's Total (TOTF.PA), one of the most active players in
Libya, declined to comment on its return to Libya while Norway's
Statoil (STL.OL) said it will respect all sanctions. U.S. firms
have repeatedly said they would fully comply with sanctions.

For a FACTBOX on the Libyan oil industry and sanctions
[ID:nLDE72E23I]

"Even if Gaddafi wins he won't be able to stabilise the
area. There's a new element - now there's an organised rebellion
force which will be backed by Libyans abroad," said Stefano
Casertano, senior fellow at German thinktank BIGS-Potsdam.org.

Analysts say China may benefit most in the early days of
Gaddafi re-establishing control and resuming oil sales
[ID:nLDE72E0BE]. Beijing, keen to secure supplies of resources,
has offered billions to other isolated states in the past.

Gaddafi has seen envoys from India, China and Russia in
recent days and urged them to invest. Russian President Dmitry
Medvedev on Monday, however, banned Gaddafi from Russia
[ID:nLDE72D0T0]

Military experts say Gaddafi could still struggle to seize
the opposition stronghold of Benghazi, which would leave the
whole country prone to controversial trading plays.

"It might become similar to Ivory Coast, where no cocoa is
traded by big firms but stuff keeps smuggling to Ghana and other
places, gets legalised and then resold on global markets," the
adviser at a risk consultancy said.
(Reporting by ALberto Sisto, Stephen Jewkes, Nia Williams and
Dmitry Zhdannikov, writing by Dmitry Zhdannikov)