US SANCTIONS AGAINST LIBYA: OPPORTUNITIES FOR EASTERN EUROPE

Created: 6/28/1986

OCR scan of the original document, errors are possible

USil Opportunities for Eastern Europe

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Although Libya haselatively small role in Easternorugn trade, the growth in Eastern Europe's exports to Libyaercintthe growth of thexports to developing countrieshole.4 Libya purchasedercent of the regions hard currency exports to developingHungary and Bulgaria have seen the otosi rapid growth of exports to Libya; East Germany hasecline in sales |

Libya provides an outlet for East European arms and manufactured goods, many of which are not competitive la Western markets. Czechoslovakia. Yugoslavia, and Bulgaria have been Libya's major East European arms suppliers.J4 East European arms deliveries to Libya0 million0 million, respectively.Europe also supplies services and equipment for oil drilling and refining and constructs large-scale projects such as refineries, factories, power plants, irrigation systems, agricultural facilities, housing, roads, and some military-related projects. Because af the scarcity of skilled professionals and need for construction crtws, Tripoliizable number of East European guest workers and pays their salaries im hard currency. An0ilitarywork in Libya.

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for Expanded Ties

East European firms potentially could fill some of the gaps left as US firms comply with the sane-

ih Inn and haa, ivppfict IM rcsi tions. Bulgaria and Romania already have anpresence in Libya as suppliers ofdrilling and exploration equipment andThese countries probably could provide additional equipment and services of sufficient

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Eastern Europe: Trade With4

quality and quantity io maintain Libyan oilarui.eaporu.lready hiring Bulgarian crews io'replace US crews in conducting seismic studies and is likely to bring in morcJiujgarian_as needed.

Incentives for East European countries to replace US firms in Libya include:

Here" cmrreacy rermiugj. Increased sales ofand services to Libya, specifically in tbe petroleum sector, could generate hardeither by direct payment or via reexport of more Libyan oil. Goods and services previouslyby US firms totaledillion annually. Because of lhe soft oil market. Eastern Europe may bare good bargaining leverage in striking barter deals with Libya. These same market conditions, however, limit prospects for reciporting more ofthis oil without puttingpressure on prices. Still, even if Eastern "Europe marketed just one-fourth of lhe Libyan oil formerly sold by US companies and prices plungeder barrel, lhe region could earn annually0 million in hard currency.

Di'tnificatioH ofOil Sources. By diversifying iu energy sources. Eastern Europe lowers the risk of dooesiic energyparticularf the Sovieis decrease their oil exporu to the region. The USSR might choose to redirect some oil exports io the West to generate hard currency in ihe wake of falling energy prices or retain more oil at home to balance supplies with growing domestic demand. In addition. Eastern Europe may look increasingly to Third World oilsuch as Libya because the price for Sovietpayable in East Europeannow almost twice the world price.

The Risks

easternrobably approaching increased Libyan commercial ties with caution. In recent

Libya's cash shortage has forced some of its East European creditors to accept payment in oil. and even then Tripoli has been less than reliable in deliveries. I

some East EuropeatlnrnisnaveTuidcons^ difficulty getting Libya to deliver oil to settle debts. Recently. Romania blamed iu inability i0 meet payments due to Western banks on Libya's failure to meet iu commitment to deliver oil for resale. Even if this accusation is exaggerated, such bad experiences may Induce Romania and other Bloc countries to fO slowly on expanding trade tics.

Libyan authorities are likely to continue to favor these firms over tbe East Europeans. By employing Western firms. Qadhafi would not only receive better quality goods and services but also isolate the United States from iu West European allies. As long as Eastern Europe faces such competition, iis gains from increased commercial ties to Libya will be restricti

Outlook

the risks. East European countries are likely to try to supply Libya with goods and services previously furnished by US firms. However, the region's ability to do so is limited. Sovietor oil and gas equipment, coupled with iu hard currency shortages, could persuade the USSR to look to iu East European allies to replace Western equipment purchases. The need to supply the Soviet economy cCk-idiilcs^'i :apacit) to produce goods for the Libyans. |

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Furthermore, competition from West European

/and Asian firms also seeking io benefit from US

'.sanctions will limit the Bloc's gains. |

in addition, many

West European and Asian firms are interestedor have actually takenUS contracts .for civil engineering and construction projects in

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Original document.

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