Libya Feature: How US Oil Companies Fell Out with Muammar Qaddafi (Mufson)

Stephen Mufson writes for The Washington Post:

It struck some visitors to the Houston office of ConocoPhillips chief executive Jim Mulva as peculiar that he displayed a photograph of himself and Libyan leader Moammar Gaddafi.

They were an odd couple: a veteran of corporate politics at a U.S. oil company and the colonel who had survived four decades of confrontation with the West while maintaining repressive rule over his North African nation.

But the relationship between Gaddafi and the U.S. oil industry as a whole was odd. In 2004, President George W. Bush unexpectedly lifted economic sanctions on Libya in return for its renunciation of nuclear weapons and terrorism. There was a burst of optimism among American oil executives eager to return to the Libyan oil fields they had been forced to abandon two decades earlier. Gaddafi, who had been sanctioned for Libya’s role in the downing of Pan Am Flight 103 over Lockerbie, Scotland, also looked forward to U.S. help in reviving his flagging oil production.

Yet even before armed conflict drove the U.S. companies out of Libya this year, their relations with Gaddafi had soured. The Libyan leader demanded tough contract terms. He sought big bonus payments up front. Moreover, upset that he was not getting more U.S. government respect and recognition for his earlier concessions, he pressured the oil companies to influence U.S. policies.

In late February 2008, Mulva was “summoned to Sirte for a half-hour ‘browbeating’ ” from Gaddafi, according to a U.S. State Department cable made available by WikiLeaks. Gaddafi “threatened to dramatically reduce Libya’s oil production and/or expel . . . U.S. oil and gas companies,” the cable said.

Now, this troubled marriage and the promise of billions of barrels of oil have been dashed by the fighting and Gaddafi’s refusal to relinquish power. Much is at stake; oil industry executives say companies such as ConocoPhillips and Marathon have each invested about $700 million over the past six years. But the U.S. oil companies have been pushed to the sidelines, waiting for the conflict to end.

In 2004, oil giants and Libya had hopes for a new relationship — and new discoveries.

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