Created: 5/16/1986

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nergy Weekly I


Libya; Wtestlimt With the Economy j

Libyan leader Qadhafi is facing increasing economic pressureesult ofoil market and the confrontation with the United oil revenues would force Tripoli to make difficult and riskythis year. At current export levels, Libya losesillionfor each one dollar decline in ofl prices. Conversely, iferdrop in oil exports costs ihemillion per month.ibe regime may need to

imporn by half, which wWfWWetc^nciuacDoth civilian goods and miliury equipment, magnifying already unprecedented domestic grievances over the regime's economic mismanagement. Declining oil revenues also willbility to repayillion in arrears owed io major trade partners.

The declining cash flow is intensifying an already worrisome deterioration in living standards The quality of health care and education, hallmarks of Qadhafi's revolution, has fallen sharply Food lines are growing longer and consumers more contentious. Hoarding hasay of life for most,hriving black market has evolved despite government efforts lo suppress il. The regime is attempting lo consolidate its control over the economy by hairing the number of government ministries. This, however, will not solve the problems of an inept bureaucracy and inappropriate regime policies, and could further isolate Ihe regime from the general populace-l

Libya probably will be able to maintain, or even increase, oil production as long as Tripoli can retain foreign expertise and iu European oil markets. Oil exports have not been significantly affected by the slump in international oil demand and even jumped by about onc-lhird last month. This surge probablyne-time effort to empty crude oil storage tanks Tripoli considered vulnerable to attack, rather than an indication of improved market conditions The pattern of Libyan oil exports, however, has changed since the imposition of US sanctions. Exportsest Germany arc down by more than one-third, while exports lo refiners in Spain, Italy, and Turkey have remained strong. The Libyans are using neibackform ofremainin tbe current market and are reportedly handling most oflhechanerinff arrangements themselves to make their tales less publicized. I

The continuation of low oil prices could create some long-term problems in Libya's petroleum industry. Spare parts shortages are cropping up, probably because Libya does not have tbe cash to import them. Moreover, oilfield development projects and drilling programs have been cut. These problems, however, have not dampened the interest of foreign oil companies such as the Italian oil firm AGIP, which intends to stay on in Libya, and Austrian and Swedish state firms that are interested in purchasing the oil-producing assets of USaaaaaaaaaHmm


The USignificant exodus of the(he regime has avoided hostile actions

against foreigr^iationalsariaispro^ special protection to US 3nd British citizens. Some US oilworkcrs have left Libya, but as manyould be there at any given time. The fear of future military action has nevertheless prompted large numbers of dependents to leave and could still result in theof additional workers.

Tripoli has responded to West European actions against Libyan diplomats by randomly expelling small numbers of British. Spanish, Italian, and other foreign workers and diplomats. The slowdown in the economy gives Tripoli leeway to draw down the foreign work force, but Libya remains heavily dependent on foreign expertise to operate its economy, especially the oil sector.

The Tokyo Economic Summit declaration probably will havemall impact on Western countries' economic relations with Libya. While (he summit participants were relatively forthcoming in condemning Libyanfor terrorism, any policy response is likely to come mainly in the form of stricter antiterrorism measures at borne or reduced diplomatic lies Most

Western governments still oppose economic sanctionsariety of reasons.

elief that sanctions are ineffective, an unwillingness to lose

oncern about setting potentially troublesome precedents, and a

fear of Libyan retaliation. |

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