World News

Eni tests Libya return as Gaddafi rolls back rebels

ROME/LONDON (Reuters) - Italy’s Eni 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.

“Whatever happens, imposing sanctions is shooting ourselves in the foot because by not taking this gas, we are not ensuring our energy security,” said Eni’s chief Paolo Scaroni, whose company produces both oil and gas in Libya, much of which is exported to southern Europe.

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.

“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.


Libya’s NOC head Shokri Ghanem said on Wednesday his government will honor existing contracts with Western firms.

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 recognized the opposition as the legitimate representative of Libya’s people.

“France and Italy are likely to be at the forefront of countries whose companies are blacklisted,” said Henry Smith, Libya analyst at risk consultancy Control Risks, adding Libya’s need for technical expertise and oil revenues may outweigh the desire to punish some Western oil firms in the long run.

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

Austria’s OMV, also an important player in Libya, said it still saw Libya’s NOC as its partner. “It is still not clear when work can start up again,” it said.


Stefano Casertano, senior fellow at German thinktank, said that even if Gaddafi wins he won’t be able to stabilize the area: “Now there’s an organized rebellion force which will be backed by Libyans abroad.”

“Some companies have been pushing that if there are going to be sanctions they should be from the U.N., not just certain countries. This indicates there is a fear that if the West imposes its own sanctions it will give an advantage to Chinese, Indian and Russian companies,” said Bassam Fattouh, from the Oxford Institute for Energy Studies.

Gaddafi has seen envoys from India, China and Russia in recent days.

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 legalized and then resold on global markets,” the adviser at a risk consultancy said.

Fattouh said he saw the situation similar to Sudan, where Chinese and Indian firms operate despite strong sanctions.”

Reporting by ALberto Sisto, Stephen Jewkes, Nia Williams and Dmitry Zhdannikov, writing by Dmitry Zhdannikov, editing by Anthony Barker