RABAT // Let the world take note: Libya is an economic force to be reckoned with.
That appears to be Libya's message to western countries as a row with Switzerland spins into a foreign relations crisis featuring a visa ban on most of Europe and a warning to US oil firms that their contracts are in danger.
But as Libya banks on oil-giant status to win political battles, the difficulties of working in the country are pushing foreign oil firms to seek an exit.
John Hamilton, a contributing editor at African Energy magazine, said: ""That's partly because Libyan authorities have, over the past year, taken a very hard line on contract negotiations and renegotiations. A lot of companies developing oilfields are finding it incredibly difficult to make money."
Meanwhile, few companies have struck fresh reserves of oil or gas, Mr Hamilton said. "You've seen quite a lot of companies come to the end of exploration without anything to show for it."
To those complications are added Libya's unpredictable foreign relations and its leader, Muammer Qadafi. The current trouble began in 2008 when police in Geneva arrested Mr Qadafi's son, Hannibal. They alleged that he beat his servants but later dropped the charge.
Libya retaliated by cutting oil supplies, expelling Swiss companies and detaining two Swiss businessmen, one of whom is still held.
Last month the dispute flared into a crisis as it emerged that Switzerland had allegedly barred entry to top Libyan officials, Libya barred entry to citizens of 25 European countries and Mr Qadafi called for a Muslim boycott of Swiss products.
The latter drew public derision from a US state department spokesman, Philip Crowley, which in turn provoked a warning from Libya that failure to apologise could hurt US oil companies. Mr Crowley apologised last week.
The unusual decision to mix oil and political controversy suggests Libya means business, said Ronald Bruce St John, a Libya expert with Foreign Policy in Focus, a think tank that is part of the Washington-based Institute for Policy Studies.
After decades in isolation, Libya's oil reserves and a sovereign wealth fund worth around US$60 billion (Dh220bn) have given it unprecedented leverage with western governments.
Italy buys about a quarter of its energy from Libya, while leaders across Europe hope the Libyan Desert will yield natural gas reserves large enough to help free Europeans from dependence on Russia.
The discovery of oil in Libya in 1959 transformed the country, as western oil firms were welcomed by the pro-western King Idris. Production peaked in the 1960s at three million barrels a day, a record still unmatched, according to the US Energy Information Administration.
In 1969, Mr Qadafi, then a 27-year-old army captain, overthrew Idris and reorganised Libya as a system of committees with himself as "brotherly leader and guide of the revolution". For three decades he backed assorted militant groups and liberation movements, attracting economic sanctions to Libya.
In 1999 Libya surrendered suspects in the 1988 Lockerbie bombing, starting rapprochement with the West that has seen diplomatic ties restored, sanctions lifted and foreign companies line up to do business.
Among the first was Occidental Petroleum, a US oil firm that returned to Libya in 2005 after a 19-year hiatus.
The firm's operations have since been crippled by a one-sided partnership with Libya's National Oil Corp that has cut net oil production by around two thirds in two years, Forbes magazine wrote this month, quoting Occidental Petroleum's chief executive, Ray Irani.
"When prices collapsed, they couldn't afford to put up their share," Mr Irani told Forbes. "The historical importance of Libya to Oxy is a lot more than the future importance."
Occidental Petroleum's experience is increasingly shared by foreign firms, analysts said.
The toughening policies suggest that Libya's old guard is gaining dominance within the country's ruling apparatus, Mr St John said. "People in all the key spots are very conservative, anti-reform people."
While Mr Qadafi's reform-minded son, Saif al Islam, has shied from the limelight in recent months, his conservative brother, Mutassim, is a security adviser to their father and sits on a council created last year to oversee Libya's energy industry.
The result is a leadership willing to trade on economic relations to achieve political goals, analysts said.
"Libya mostly gets its way because people are prepared to pay the price," Mr Hamilton says.
Increasingly, however, oil firms are deciding instead to decline to renew contracts or sell their Libyan assets outright.
"The future of new discoveries really boils down to a small number of companies - such as BP, Shell, ExxonMobil - which have massive exploration programmes going on for the next few years, and which could open new frontiers," Mr Hamilton said. "But for time being, oil companies are leaving rather than entering."
@Email:jthorne@thenational.ae
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In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
