German Firm Wants to Drill for Oil in Libya - Effort Escalates Dispute
Between U.S. and Europe Over Economic Sanctions
Washington Post, Tuesday, May 8
By Alan Sipress, Staff Writer
A German firm is seeking permission from Libya to drill in oil fields that formerly belonged to American companies, whose operations have been frozen by U.S. sanctions since 1986, according to German officials.
The effort by Wintershall AG represents a major escalation in a running dispute between the United States and Europe over economic sanctions, and it heightens the urgency of a battle brewing in Congress over whether to renew the Iran-Libya Sanctions Act (ILSA), which expires in August.
The law, enacted in 1996 to punish Libya and Iran for supporting terrorism, imposes stringent penalties on foreign firms that invest in those countries. Although European companies have defied ILSA in the past, U.S. officials said the proposed Wintershall deal is the first that threatens significant U.S. economic interests. The oil fields at issue are estimated to hold more than 3 billion barrels of oil as well as newly identified potential for natural gas.
The Bush administration has not yet staked out a position on renewal of ILSA. Some administration officials, sharing the energy industry's view, want to soften or eliminate the law and lift other sanctions to increase U.S. access to Libyan and Iranian oil. Others argue that Libya and Iran must take more steps against terrorism before sanctions are removed.
One senior Bush administration official said last week that the German acquisition of assets long held by the Oasis Group, a consortium of three U.S. oil companies -- Conoco, Amerada Hess and Marathon -- would be "a very serious issue on at least two counts."
First, President Bush could invoke sanctions against Wintershall under the terms of ILSA if the German company's investment in Libya exceeds $40 million. Moreover, the senior official said, "it would be particularly disturbing since it would relate to property U.S. companies had to put on standstill some 15 years ago."
Sens. Jesse Helms (R-N.C.) and Joseph R. Biden Jr. (D-Del.), chairman and ranking minority member of the Senate Foreign Relations Committee, respectively, raised the dispute in separate meetings last week with German Foreign Minister Joschka Fischer. Helms rebuked the German government for failing to block Wintershall's initiative, while Biden warned that it could damage U.S.-German relations, according to Senate staffers.
A German diplomat in Washington said Wintershall is one of several European companies that have applied to the Libyan government for drilling rights. In the case of the property that Wintershall is seeking, he acknowledged, "some American companies have some claims . . . from before sanctions were put in place."
The diplomat said that Wintershall and the U.S. companies that comprise Oasis should resolve their claims directly, preferably through an amicable settlement but if necessary in the courts. Germany and other European allies object in principle to ILSA, on grounds that the United States has no right to legislate the behavior of foreign companies operating outside its territory.
Wintershall spokesman Susanne Ulitzsch, initially contacted for comment last week, released a brief statement yesterday saying: "We don't express our opinion on rumors in the market." A spokesman for the German chemical company BASF, which owns Wintershall, referred all questions to its oil and gas subsidiary.
U.S. companies are precluded from investing in Libya under a presidential order issued by President Reagan in 1986. At the time, the Oasis Group companies signed an agreement with Libya to protect their exploration and production assets for three years. Though the standstill agreement lapsed in 1989, Libya continued to respect its terms.
But within the last six months, the Libyan government twice has written to the Oasis Group indicating that its assets could be at risk. The chairman of the Libyan National Oil Corporation wrote to Oasis officials in November, signaling that it planned to transfer one of the fields to European companies and begin developing natural gas.
An Oasis Group statement issued afterward said "the transfer of this field to European competitors would be a tremendous loss to the Oasis Group and will likely be followed by other, more significant Oasis asset losses."
Two months ago, the American group received a second letter from the Libyan government, asking the three U.S. companies to "clarify their intention vis a vis resumption of their activities in Libya."
Since the American companies suspended operations in Libya in 1986, the fields have continued to be tapped by the Libyan National Oil Corporation, which had previously formed a partnership with Oasis. The American oil companies estimate they have lost $5 billion in revenue over that time.
Business sources said that Libya may now be preparing to transfer its own drilling rights in the fields to Wintershall, while continuing to respect those of Oasis. But these sources said this would still deal a significant blow to the U.S. companies.
It would establish the German firm as the chief operator of the fields, replacing the Americans and depriving them of control over production, according to the business sources.
And when the American companies were finally allowed to return, they could face costs for using pipelines and other equipment installed by the German firm.
Officials from the U.S. oil companies have continued to speak with the Libyan government since they suspended operations, expressing their desire to return when sanctions are lifted. "We made it clear we'd like to go back. U.S. policy will determine what we do and don't do," said Carl T. Tursi, spokesman for Amerada Hess.
Since 1999, technical teams composed of representatives from the three oil companies have made a pair of visits to Libya with official American permission to assess the condition of the oil operation there. At the same time, the U.S. companies said they have been assured by the Libyan government that they would be able to resume exploration and production.
"It has been a continual dialogue over the last 16 years as the law would permit," said Sondra Fowler, Conoco spokeswoman. "Conoco and the companies we work with there have been repeatedly told by the Libyan government that our rights are in good standing."
As recently as last fall, Libyan Prime Minister Mubarak al-Shamikh said the investments of American companies "are protected and waiting for them to return."
David L. Mack, vice president of the Middle East Institute, said Libyan steps toward transfering drilling rights could be a ploy aimed at pressuring the United States to ease sanctions. But he said he doubted that Tripoli would carry out the threat to give away American assets, since this would eliminate one of the chief incentives for the United States to normalize economic relations.
"I think there's a little bit of Libyan gamesmanship going on here," Mack said. "The Libyans are not so hard up for good production acreage that they have to weaken their leverage for changes in U.S. policy."
Researcher Lynn Davis contributed to this report. |
