- The Washington Times - Thursday, January 8, 2009

A proposed joint venture in Libya between two energy giants, Italy’s Eni and Russia’s Gazprom, is posing an immediate headache for the first U.S. ambassador to take up residence in Tripoli in 36 years.

Ambassador Gene A. Cretz took his post last month in the Libyan capital, at a time when U.S. oil companies are battling to re-establish a presence in the oil-rich North African nation.

Mr. Cretz, a 58-year-old career diplomat, said before departing that serving as ambassador was “a chance to reintroduce America to Libya and a chance to reintroduce Libya to America.”

His appointment as the first U.S. ambassador to Libya in 36 years marked the normalization of Libyan-U.S. relations after Libya in October paid $1.5 billion to settle claims by the families of U.S. citizens killed in the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, the 1986 attack on a West Berlin disco and other terrorist acts.

Secretary of State Condoleezza Rice met Libyan leader Col. Moammar Gadhafi in Tripoli in September, after Libya and the United States settled the outstanding lawsuits.

Mr. Cretz cited business and tourism among his priorities for expanded cooperation when he landed at Tripoli airport on Dec. 27.

Because sanctions on the country were lifted after it abandoned its weapons-of-mass-destruction program five years ago, Libya has attracted a growing number of international oil companies.

U.S. oil companies won several contracts to explore the untapped and potentially vast oil fields after sanctions were lifted, but the deals were threatened by the terror lawsuits and the possibility that the plaintiffs could seize profits as part of a judgment against Libya.

Those obstacles were removed when ties between the two countries were normalized. Now, however, U.S. officials are irked by what they see as unfriendly maneuvering in Libya by longtime U.S. ally Italy, whose Eni energy concern has given Moscow a potential advantage in the Libyan market by signing an asset-swap deal with Gazprom, diplomatic sources say.

If the agreement is finalized, Gazprom will receive part or all of Eni’s stake in Libya’s Elephant oil field in return for Eni being allowed to acquire Russian assets.

Gazprom’s foreign-affairs chief, Stanislav Tsygankov, said Dec. 23 that Eni and the Russian gas monopoly have taken a break before closing the deal because of volatile oil prices but that the accord was “completed in principle.”

The Tripoli Post, the government-controlled English-language newspaper, reported last month that Libya also had approved the deal.

More than 30 companies want to match the success of Eni, which in 1997 discovered the Elephant oil field, which produces about 150,000 barrels per day. Eni is the largest foreign oil operator in Libya, with a production of 550,000 barrels per day.

“The American oil companies and government will certainly be unhappy with Eni’s policy,” said Giuseppe Oddo, an energy expert who writes about Libya for Milan’s Il Sole 24 Ore, Italy’s leading business daily.

“Eni’s policy of market penetration in the world often involves friendly relations with Russia, and that is naturally displeasing to the Americans, who are trying to contain Russia. This is obviously the case in Libya.”

The accord came after Libya’s announcement Dec. 6 that the Libyan Energy Fund wanted to buy a 10 percent stake in Eni, one of a number of investments Tripoli is considering in Italy.

The investment would make Libya Eni’s second-biggest shareholder after the Italian government, which has a 20.3 percent stake.

Libya has emerged as a leading source of capital for Italy, its former colonial power, as well as an important energy partner.

Libya recently acquired 5 percent of the Italy-based pan-European bank Unicredit. On Aug. 30, Italy and Libya signed an agreement under which Rome will pay compensation for misdeeds during its colonial rule of Libya.

Col. Gadhafi hailed the accord as opening a new era of cooperation between the two countries.

Mr. Oddo said the competition between Italy and the United States in Libya is not entirely new. “Eni has a historic stake in Libya and has been in conflict with American companies since it started operating there, including providing some covert finance for Moammar Gadhafi’s military takeover,” he said.

The chairman of Libya’s state-owned National Oil Corp. (NOC), Shokri Ghanem, says a merger between NOC and an international oil company could take place within the next five to 10 years.

Should that happen, analysts believe Eni would be a leading candidate.

Italy’s dependence on Russian gas also is a factor in Eni’s collaboration with Gazprom in exploration joint ventures, Mr Oddo added.

“About one-third of Italian gas consumed is from Russia. If the Russians turned off the tap, Italy would have to shut down.”

There also have been persistent reports of personal business synergies developing from Italian Prime Minister Silvio Berlusconi’s relationship with Russian Prime Minister Vladimir Putin. Eni’s policy should be seen against that background also, the Italian expert added.

“The two men are similar in outlook with a similar view of democracy, a little bit dictatorial,” Mr Oddo said.

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