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They bombed and therefore they shall reap Add to ...

Six months ago, saving Libya from potential atrocities inspired by Moammar Gadhafi meant establishing a no-fly zone over the country, all the better to protect Benghazi, the rebel stronghold in the east. Then classic mission creep set in and the NATO forces, Canada among them, were bombing Tripoli and clearly trying to eliminate Africa’s longest-standing dictator and his sons (while denying that was the goal). As the rebels flooded into Tripoli this week, the air raids continued. Reportedly, Qatari special forces were on the ground to direct the rebels’ advance.

By Wednesday it was amply clear that NATO’s mission creep was lubricated by oil. The rebels had not even secured Tripoli and already the leaders of France and Italy, and their national oil champions, were openly courting the top men of the rebels’ National Transitional Council (NTC). Meanwhile, other countries with Libyan oil ambitions, including Germany, were racing to free up frozen Libyan assets and direct the loot to the victors.

The ground war is almost over; the oil war has begun. Or maybe it began months ago.

In the global oil markets, Libya punches well above its weight. Its reserves are thought to be Africa’s largest, although data is unreliable and Nigeria and Angola might dispute Libya’s alleged No. 1 status. Before the civil war began in earnest in February, Libya was pumping about 1.6 million barrels a day, most of which went to southern Europe, whose refineries were tailored to refine Libya’s light, high-quality crude (Saudi crude is heavier and unsuitable for many refineries).

Libya’s oil output shrank to less than 100,000 barrels a day during the war. Europe is desperate to get Libyan oil and gas exports back to their former level. The oil industry’s biggest players, meanwhile, are salivating to reclaim their old concessions and nab new ones, all the more so since their own oil production has been in decline. The vast Ghadames and Sirte basins, largely off limits to foreign oil companies since Col. Gadhafi swept to power 42 years ago, are especially attractive. So is Libya’s offshore area.

Who will get the prizes? The NTC has already said it will reward the countries that bombed Col. Gadhafi’s forces. “We don’t have a problem with Western countries like Italians, French and U.K. companies,” Abdeljalil Mayouf, a spokesman for the rebel oil company Agogco, was quoted by Reuters as saying. “But we may have some political issues with Russia, China and Brazil.”

He was referring to the trio of countries that did not back strong sanctions on the Gadhafi regime, and which were sometimes critical of the bombing campaign, although they did want Col. Gadhafi out of the picture. Russia has already admitted that it’s doomed to become an early casualty of the new Libyan oil campaign. “Our companies will lose everything there because NATO will prevent them from doing their business in Libya,” Aram Shegunts, director-general of the Russia-Libya Business Council, told Reuters.

But it may not be that simple. Libya has no government, constitution or regulators. Tribal conflicts may tear the NTC apart. Depending on who forms the government, anti-Western sentiment may set in, making life difficult for any European and North American oil company.

While it is probable that the companies with existing leases – Italy’s Eni and France’s Total, among them – will be able to resume their operations when the violence ends, there is no guarantee that the coveted new leases will be awarded soon or automatically favour the countries that dropped the smart bombs. China plays the long game and is happy to sponsor infrastructure projects in exchange for preferred bidder status. You can bet that it will ultimately emerge as a big name in Libyan oil, as it has elsewhere in the parts of Africa that are rich in resources.

Corruption and backdoor deals are bound to return. One former oil company boss, who did not want to be named, said his Libyan adviser once instructed him to earn points with the government by sponsoring a showing of paintings by Saif al-Islam Gadhafi, one of the dictator’s sons, in his home country. He refused and the company’s lease acquisition effort produced nothing. Libya’s new regime could well insist on favours and kickbacks in exchange for a piece of the oil action.

What is certain is that access to oil will dominate the Libyan agenda in the next year or so. Any new Libyan government will need strong oil exports to rebuild the economy. Oil companies will do anything they can to tie up the Mediterranean’s last great conventional reserves. The rebels may savour their victory, but the revolution is not entirely theirs. Libya is looking suspiciously like an oil war and the countries that delivered the bombs want their rewards.

Follow on Twitter: @ereguly

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