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Libyan display of pique stirs tensions with foreign oil players

With businesslike former prime minister Shukri Ghanem heading National Oil Corporation and the leader's reformist son, Saif al-Islam Qadhafi, showing Libya's respectable face, the country's new partners in the West dared to expect that its policies would no longer be subject to the Quixotic whims of the man once-dubbed "Mad Dog".

Alas, for the countries hoping to do business with Libya, some bad old habits seem to have returned. After an unseemly diplomatic spat with Switzerland, triggered by the latter's arrest in July 2008 of another of Qadhafi's sons, Hannibal, on allegations of mistreating two employees – charges since dropped – Qadhafi has raised the stakes, saying US and European business interests will suffer as a result of the slight.

In mid-February, Libya stopped issuing entry visas to European citizens within the Schengen zone – which includes Switzerland – after the Swiss government published a blacklist of 180 Libyans that would be banned from entering the country. Although no official reason was given, it was seen as a retaliation for the Swiss decision, confirmed by Qadhafi's call at the end of the month for a "jihad" against Switzerland.

Tension increased in early March, this time dragging the US – hitherto a close partner of Libya – into the dispute. On 3 March, the Libyan foreign ministry issued a demand for an apology over a joke on Libya allegedly made by a State Department official about Qadhafi.

Ghanem then summoned the local heads of US energy companies to tell them the diplomatic row with Washington could have a negative effect on US businesses in Libya. Ghanem also confirmed that nationals from the 25 European Schengen area countries as well as the US would be denied visas to attend an oil and gas conference that took place in Libya in the first week of March.

The leadership says it is ready to punish oil companies for the alleged insults to Libya's good name. The Arabic daily, al-Sharq al-Awsat, quoted Ghanem as saying that the diplomatic row had prompted Libya to start looking for new energy partners. "We are considering giving priority to Chinese and Russian companies," Ghanem said.

International oil company (IOC) executives who have spent a long time in the Jamahiriya might be used to confrontational statements from senior Libyan officials. Yet such comments come at an inopportune time, just weeks after the first official US trade mission visited Libya, which had appeared to signal a further improvement in economic ties.

It threatens to undermine trade relations and some of the good work that Libya has accomplished in sprucing up its business environment – Libya has a new draft hydocarbons law to replace the existing one, which dates back to 1955, but the media has shown more interest in the diplomatic stand-off.

Libya can ill-afford to jeopardise much-needed investment in its energy sector. With Saif's appointment as general co-ordinator of the Popular Social Command – a senior political position – yet to be confirmed by the General People's Congress, there will be disquiet in IOCs that Libya is steadily slipping back into pariah mode (PE 9/09 p8).

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