IEEJ: 2011 September All Rights Reserved

Special Bulletin

A Japanese Perspective on the International Energy Landscape (58)September 9, 2011

International Relations Regarding Libya Are Attracting Attention Along withEuropean, U.S. and Chinese Responses
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan

While the whereabouts of Col. Muammar Gaddafi have remained unknown, more than
three weeks have passed since a change of government on the collapse of the Gaddafi regime inLibya. For the immediate future, the new Libyan “government” will have to tackle security problems
including a possible conflict with Gaddafi forces. Meanwhile, the reconstruction and stabilization ofthe Libyan economy and national livelihood affected seriously by the civil war are attracting
attention as key future problems. On September 1, representatives from the United Nations and otherinternational organizations as well as 63 countries attended a “Friends of Libya” meeting in Paris todiscuss how best to help reconstruct Libya.

At the meeting, National Transitional Council Chairman Mustafa Abdel Jalil and other
Libyan representatives released a nation-building roadmap including plans to establish a new
constitution and implement elections within 18 months. The participants in the meeting announced
that the international community would help reconstruct Libya by providing military support by
North Atlantic Treaty Organization forces and lifting a freeze on $15 billion as part of Libya’soverseas assets.

While the meeting has produced the grand direction of the international community’scooperation in reconstructing Libya, major countries based on various stances are likely to conflictover specific measures. One of the largest factors behind such conflict is the difference between theirbasic stances on military campaigns against the Gaddafi regime based on a U.N. Security Council
resolution. Particularly, European countries and the United States led the military campaigns, while
China and Russia abstained from voting on the UNSC resolution and kept a distance from Western
nations with their negative attitude about the military campaigns.

It may be needless to say that the restoration of the energy sector is the most important
regarding the overall Libyan reconstruction. Since the civil war broke out, oil and natural gas exports1

IEEJ: 2011 September All Rights Reserved

as the key supporter of the Libyan economy stopped with production and export infrastructuredamaged seriously. Libya’s most important challenge should be to restore its energy infrastructureand develop the largest oil deposits in Africa to reconstruct its economy. But foreign financial andtechnological cooperation will be required for the challenge. In a sense, this means that newinternational interests and business opportunities will emerge regarding Libya. Another important
point is how interests existing under the Gaddafi regime will be treated.

In this respect, Western countries, which participated in the military campaigns to support
the change of government, have promptly demonstrated their proactive attitudes on thereconstruction. In France that hosted the “Friends of Libya” meeting, Foreign Minister Alain Juppe
reportedly voiced his hope to have French companies given preferential treatment. In Italy that hadcolonized Libya and has retained historical relations with the North African country, ENI swiftly
signed fuel supply and other contracts with the Libyan NTC and indicated interests in resuming thepipeline for Libyan gas exports to Italy.

In response, Russia has called on the United Nations to lead the Libyan reconstruction andindicated its cautious attitude against some Western countries’ bilateral bargaining with Libya. But
the most attention-attracting problem would be Chinese moves. China has aggressively implemented
investment in the resources and energy sector and infrastructure construction in Libya (and manyother African countries). China has reportedly clinched some 50 Libyan investment deals worth$18.8 billion. Because of such investment, China has remained negative about Western militarycampaigns against Libya and has kept a distance from Libyan rebels. But such Chinese stance might
have backfired. As soon as the Gaddafi regime collapsed, China might have enhanced its approach tothe Libyan NTC to protect its interests in Libya. But details remain unknown.

Amid such situation, a Canadian media organization on September 4 reported on theGaddafi regime’s negotiations with Chinese companies in July on arms transactions, drawing majorreactions. The report stated that the Gaddafi regime contacted China North Industries Corp. and twoother state-run Chinese military industry firms and clinched secret arms purchase deals worth $200
million. Such deals, if true, may run counter to UNSC Resolution 1970 banning arms sales to Libya.
But the Chinese government immediately and strongly denied any arms sales to Libya. The media
report’s authenticity is uncertain. But the arms sales problem has hardened the NTC’s attitude
against China. Libya-China relations could sour.

The Middle East and North African crisis, where changes of government have been seen inTunisia, Egypt and Libya, has produced various spillover effects. Particularly, the Libyan crisis has
led to the large-scale reconstruction and relevant international relations as new problems. How major
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IEEJ: 2011 September All Rights Reservedcountries will be involved in Libya’s reconstruction including energy development would be
important for us to anticipate the future course of the country. Particularly, we may have to closely
watch China’s diplomacy with Libya to protect its interests in Libya and engage in thereconstruction.

Contact: report@tky.ieej.or.jp
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http://eneken.ieej.or.jp/en/whatsnew/JPOIEL.html

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