The Multinational Monitor


G L O B A L   N E W S W A T C H

Exxon decides to withdraw from Qaddafi's revolutionary nation

U.S. Oil Giants Have Become Part of Reagan's Plan to Destabilize Libya

by Terisa Turner

"We can confirm that Exxon has relinquished its concessionary interests in Libya by notice to the Libyan government. Exxon will withdraw from all operations in Libya. It is the desire of Exxon and we believe that of the Libyan authorities, that Exxon's withdrawal be accomplished in an amicable and orderly manner. Discussions are under way with the Libyan authorities on arrangements for such a withdrawal."

It was Thursday, November 12th, and the world's largest multinational company had just announced an ominous decision to depart from Libya.

"The withdrawal of Exxon is part of a concerted program that the U.S. has been organizing against Libya," says James Petras, professor of sociology at the State University of New York, Binghamton. "The key factor holding back a military attack" by the U.S., says Petras, has been "the presence of so many U.S. citizens there."

One Libyan oil administrator, reached by phone on November 16th, agreed with Petras' assessment. "I think Exxon is implementing the decision of the Reagan administration," said the official, a former member of the Esso-Libya management committee, who wished to remain unidentified.

The Political Context

The Reagan administration has minced no words about its dislike of Libya under the leadership of Muammar Qaddafi. Repeatedly denouncing Qaddafi for "supporting international terrorism," Secretary of State Alexander Haig reportedly told western allies in August that the regime was a "cancer that has to be removed."

Qaddafi's decision to send troops in support of now-President Oueddi in the Chadian civil war last year, as well as his support for the anti-Shah uprising in Iran, the Polisario movement in the western Sahara, and for Palestinian causes, has led the U.S administration to step up its propaganda campaign about Soviet "penetration" in Libya.

A number of other Libyan policies have antagonized the United States government: the role Libya has played within OPEC, including denouncing the influence of Aramco (a consortium of U.S. oil companies) in Saudi Arabia; the country's insistence on high oil prices and reduced production levels; Libya's internal revolution, which deposed a corrupt U.S. ally (King Idris) in 1969 and which claims to seek direct citizen control of military, economic and political power; and its public sector development strategy, which has shown a remarkable ability-unprecedented among OPEC countries-to raise the quality of life of its people.

Tension between U.S. and Libya rose in May when the United States abruptly closed the Libyan embassy in Washington. Bad turned to worse when on August 19 the U.S. air force shot down two Libyan fighter planes over the Gulf of Sidra.

On May 6, 1981, the U.S. State Department made public its desire to have all Americans withdrawn from the country, issuing a "traveler's advisory" to all American citizens in Libya or those planning to go to that country.

"Due to unsettled relations between the United States Government and the Government of Libya," the advisory began, "the Department of State warns American citizens against any travel to or residence in Libya." It further warned that the U.S. government was not in "a position to provide consular protection and assistance to Americans presently in Libya."

An article in the Wall Street Journal of July 14 dramatized the pressure the State Department apparently was placing on U.S. oil companies to pull out.

"A clear indication that something is brewing is the State Department's repeated advice in recent weeks to U.S. oil companies operating in Libya to get Americans out - pronto," said the article, datelined Tripoli. "These warnings, delivered through both public and private channels have stressed the potential hazards to Americans from the Libyan authorities. But it is clear that the pleas are also aimed at giving the U.S. a free hand."

"The companies won't get another warning," the article quoted one unidentified U.S. official as saying.

"We're playing confrontation politics, and we want them out, whether there is a coup in the works or not."

The State Department denies pressuring U.S. companies to leave.

"I talk with the oil companies a lot," William Pope, State Department desk officer for Libya, told Multinational Monitor recently. "There hasn't been any repeated advice" to them, he insisted.

Although officials at Exxon would not comment about the company's reasons for leaving Libya, narrow economic considerations can be ruled out. The fact is that Libya provides excellent incentives to multinational oil companies.

Libyan exploration and production sharing (EPS) contracts, dating back to 1974, give multinational energy companies from 15% (onshore) to 19% (offshore) of oil produced at no more than the cost of production. Unlike other OPEC countries, Libya charges no taxes or royalties on the foreign companies' share of production on the EPS contracts. The great advantage of this kind of contract - from the companies' point of view - is that for a very limited and one-time investment of risk capital, multinationals receive long-term access to fixed and relatively large proportions of tax- and royalty-free crude.

Libyan EPS contracts provide foreign companies with 22 times the income per-barrel offered in standard participation contracts in Saudi Arabia, Abu Dhabi and Oman, according to a study by Pierre Terzian, deputy director of the Paris-based Arab Oil and Gas Research Centre.

"I am wondering why Exxon dropped out," said Terzian, in a telephone interview November 16th. "They were making good money."

Just how much money Exxon was making in Libya can be estimated by analyzing the generous arrangement the Libyan National Oil Company (LNOC) gave Exxon and by looking at the amount and price of the oil produced.

In September, 1974, the American giant signed an EPS agreement with LNOC, providing Exxon with 15% of onshore oil at no cost beyond that of its share of production (about $2.00 a barrel). In mid-1981, Exxon's subsidiary company Esso-Libya's production was in the 135,000 barrel a day range.

At a very moderate estimate of the world market price for Libyan oil $35 per barrel-this leaves Exxon with a $33 profit per barrel on its share of production, for a total of $660,000 daily-over $240 million for 1981 alone.

Despite the sweetness of the deal, Exxon and Libya have had problems working together.

The Esso-Libya production relationship has had two particularly un conventional components. The management committee (of two Libyans from LNOC and one American from Exxon) included Abdusalam Zagaar, a labor activist who was imprisoned by King Idris before the 1969 Free Officers' Movement took power under Qaddafi (Zagaar is now Libya's Secretary of Petroleum, the first such office-holder in OPEC to have been elected by oilworkers). Also since 1978, when a "workers' revolution" against bureaucracy and foreign dependence was instituted, Esso-Libya has been a virtual training school for Libyan workers.

It is difficult to estimate just what effect this history of labor militancy within Esso-Libya has had on Exxon's decision to withdraw, but the arrangement is clearly unusual from Exxon's point of view.

For their part, Libyan officials have complaints about Exxon's performance. The ex-member of EssoLibya's management committee, quoted above, claims that "Exxon was not fulfilling its obligations as far as exploration, oilfield maintenance and production are concerned." The official, who preferred to remain anonymous, added that Exxon's exit "should have been pursued from our side long ago."

Other U.S. Companies Watching Closely

Exxon is not the only U.S. oil company that is reconsidering whether to remain in Libya. On November 1, Mobil ceased production. "We are not presently lifting," confirmed Jim Amana, public relations officer for Mobil. "We have been in discussion with Libyan authorities with regard to our operations in that country and we are studying the entire situation." Mobil would provide no information on the reason for the production stoppage.

Since Mobil's Libyan operations are relatively small-lifting less than 30,000 barrels a day-it can afford to pull out of Libya without substantially affecting the company's overall supply of crude.

Not so with Occidental Petroleum. In the third quarter of 1981, Occidental was lifting 150,000 barrels a day from Libya, making that country the largest supplier for the company.

Occidental has "no intention" of leaving, says Philip Wallach, a spokesman for the company. Libya's production-sharing contracts are "among the best in the world," Wallach explained, and Occidental is "probably the most successful U.S. business operating in Libya."

Three other U.S. companies produce oil in Libya-Marathon, Amerada Hess and Conoco, a subsidiary of Dupont. These firms comprise the "Oasis consortium." All three affirmed that they were carrying on business as usual.

In addition to the six U.S. oil companies operating in Libya, there are three French firms (Total, SNPA and Elf), the Italian state firm Agip, Braspetro of Brazil and the Indian government firm ONGC. These largely state-owned oil corporations have indicated no interest in abrogating their production and related activities in Libya, although smaller quantities of oil have been purchased over 1981 as a result both of Libyan conservation cutbacks and a relatively high official government price.

Meanwhile, there are moves in Libya to institute an oil embargo against the U.S. In August the Beirut newspaper Al Liwa reported that Libya was preparing a feasibility study on the effects of cutting oil shipments to the United States, and in mid-November Libya's Union of Petroleum, Mining and Chemical Workers called for an embargo. The union, which has taken a militant stand in support of economic sanctions against South Africa, called on all Arab oil producers to impose an embargo to protest U.S. military activity in the Persian Gulf and the Mediterranean Sea.

Libya's Position: A Damaged Buffer

The government of Libya, for its part, has been bending over backwards to maintain good relations with the companies-even when doing so doesn't appear to be in the best interests of the country, economically.

"The real question, from an economic and technical point of view," says Norwegian petroleum economist Petter Nore, "is why has Libya kept foreign oil companies in the country under such profitable arrangements for so long?"

Only in the context of U.S. destabilization efforts does Libya's maintenance of highly favorable oil company contracts become comprehensible. The situation is not unlike that prevailing in Angola where the government is careful to cooperate closely with Gulf Oil and other U.S. companies, in part apparently, to enlist them in efforts to moderate American hostility.

A number of incidents over the past six months demonstrate Libya's interest in having the oil companies act as a sort of protective buffer.

Just after the U.S. government sent its Sixth Fleet to the Gulf of Sidra and shot down two Libyan fighter planes, the Libyan secretary of petroleum and a member of the ruling council invited representatives of American oil companies in Libya to dinner. Their continued safety was assured and they were asked to convey to President Reagan the government's interest in re-establishing diplomatic relations.

This concern for oil company allegiance is one of the reasons (along with the weak world market for oil) Libya has recently sweetened the terms of U.S. oil company contracts.

In an agreement negotiated in October and November, the Libyan government decided to give Occidental additional tax benefits, allowing the company to extract more oil under its EPS contract that yields a profit of around $33 per barrel, provided Oxy continues to buy at the same level as it was in the third quarter.

And on November 16th-just four days after Exxon announced its withdrawal-Libya informed Marathon, Conoco, and Amerada Hess that it was ready to lower by one dollar a barrel the average cost of crude it charges the companies.

These inducements place U.S. companies in a tricky position. In the short-term, they will be able to increase profits, but only so long as the domestic political situation remains stable. If the U.S. government has its way, that apparently won't be for long.

With Exxon gone, part of the protective buffer the Libyan government created to block aggressive moves by the U.S. has been torn away.

"By pulling out, the company is clearing the way for military attacks," says Petras. "What you have here is a case of the multinational corporations being instrumentalized by the U.S. state."

Terisa Turner is a Canadian petroleum economist based in New York. With Petter Nore she co-edited Oil and Class Struggle, (Zed, 1980).

Table of Contents