OilVoice - Diplomatic Spat Between US And Libya May Hit Oil Industry

Diplomatic Spat Between US And Libya May Hit Oil Industry

Saturday, March 06, 2010

Strained diplomatic relations between Libya and the US may potentially spill over into the African nation's oil industry. Libya's state-backed National Oil Corporation (NOC) has warned the five US-based oil firms operating in Libya that comments made by a US official could damage their position in the country. The unnamed official's remarks, made in response to Libyan leader Muammar al-Qadhafi's call for jihad against Switzerland, have damaged relations between the two nations.

Following Libya's suspension of visas for all citizens of the 25 Schengen area countries last month, the latest row is a yet another reminder of the political risk damaging the business environment for overseas oil firms operating in Libya.

The current disagreement has been running for some time now and is rooted in a dispute between Libya and Switzerland that dates back to July 2008. However more recently, Libyan media sources claimed that Switzerland had blacklisted 186 Libyans from being admitted to the country. Shortly afterwards, Libya suspended the issue of visas to all Schengen area countries including Switzerland, and on February 25 Qadhafi called for a jihad against the country. The following day US state department spokesperson Philip Crowley criticised Qadhafi's statement. Libya responded by declaring a full economic embargo on Switzerland and summoning representatives of US oil companies to complain about Crowley's remarks.

In the meeting this week, NOC's chief executive officer Shokri Ghanem informed the five US companies operating in Libya including ExxonMobil, ConocoPhillips, Occidental Petroleum, Marathon Oil and Hess, that the state department spokesperson's remarks could damage US interests in the country. While representatives of the five firms are reported to have expressed regret over Crowley's remarks, it is now clear how this was received by Libyan officials.

The five US oil explorers returned to Libya in the wake of the lifting of US sanctions against the country in September 2004 - twelve months after UN sanctions were ended. In 2008, the four producing US companies, ConocoPhillips, Marathon, Hess and Oxy combined produced an average of 131,000 barrels per day (bpd) of oil, while ExxonMobil, which returned to the country in February 2007, was involved in offshore exploration in the Sirte Basin.

While there stands to be obvious losers from the diplomatic spat, there are also likely to be winners. The row engulfing both the US and Schengen area countries could well benefit oil companies from countries not involved. The largest of these such companies is British-based BP. Also on the list is Russia's Tatneft and Gazprom, Australia's Woodside Petroleum and Canada's Suncor.