April 18, 2008
By Ariel Cohen, Ph.D.
Energy deals and proposals featured prominently during Putin's
visit. Libya is believed to hold the largest oil reserves in
Africa, having also the fourth largest reserves of natural gas.
Reportedly, Gadhafi told Putin that he favors the idea of a gas
OPEC, a notion that Russia appears to share with Iran and
Venezuela, and which one day may do to the liquefied natural gas
(LNG) market what OPEC has done to oil. Furthermore, the two
leaders discussed cooperation in the field of nuclear energy.
Policy makers in Washington are fuming and biting their nails -
"bad Vlad" is apparently outfoxing them yet again.
The Russian state gas monopoly Gazprom has reached an agreement
with Libya's National Oil Corporation to establish a joint venture
on the exploration, production, transportation and sale of oil and
gas. The two companies are working on a memorandum of understanding
to define cooperation parameters.
Gazprom's CEO Alexei Miller, accompanying Putin, expressed his
company's interest in participating in LNG projects together with
the Libyans, and in building a gas pipeline from Libya to Italy.
After Tripoli, Putin is heading to Sardinia, where he will meet his
good friend Silvio Berlusconi, who is likely to become the next
Italian prime minister. Guess what they are going to talk
Before Putin's trip to Libya, Gazprom was working hard to
increase its presence in North Africa. It has acquired three gas
projects there since 2007, after the Italian energy company Eni,
Gazprom's strategic partner, agreed to swap some of its Libyan gas
assets in the Russian company's favor. In Libya, Eni controls 50
percent of the Green Stream gas pipeline linking Libyan fields to
Sicily, over one-third of shares in the Elephant oil field, and an
LNG facility in central Libya - all these are attractive to
Gazprom, which is dreaming of becoming the world's No. 1 energy
company in terms of capitalization, and а global
Putin's visit has resulted in the signing of 10 declarations,
including intergovernmental agreements on investments, trade and
financial relations, and a military-cooperation agreement.
Commercial contracts included one for $3.5 billion for the state
monopoly Russian Railways (RZD) to build a 500 kilometer rail line
in Libya between the cities of Sirte and Benghazi, and possibly a
$2 billion to $4 billion Russian deal to sell the Libyans modern
arms. These could include 12 of the latest Su-35 multirole fighters
(or Su-30MK2 according to other reports); a dozen MiG-29 SMT
fighters; S-300 PMU-2 long-range surface-to-air missiles, Tor-M2E
short-range SAM systems, military helicopters, submarines,
warships, and army equipment. As a part of the arms sales package,
Russia would also supply the Libyan military with spare parts and
maintenance for the Soviet-made equipment still in its
Putin and other Russian policy makers dream of regaining their
influence in the Middle East, control that was lost with the
collapse of the Soviet Union. Before the USSR's demise, Libya was a
major trading partner of the Soviet state, with which it had an
annual turnover of $1 billion, five times more than today. More
importantly, Moscow was Tripoli's main arms supplier. The Soviet
Union sold Gadhafi about $10 billion in weapons. Also, the Soviet
navy had in Libya an air station for its maritime patrol aircraft
and port access ports for its ships.
During the 1990s, the Russian Federation would not sell arms to
Libya in order not to violate the U.N. embargo imposed on Libya for
Gadhafi's involvement in terrorist activities. The embargo and
international sanctions were lifted in 2003, after Libya agreed to
eliminate its weapons of mass destruction program and acknowledged
responsibility for the 1988 Lockerbie bombing of a Pan Am
There was, however, a major stumbling block preventing the
resumption of Russia's lucrative arms contracts with Libya after
2003: the lack of agreement on the size of Libya's debt to the
Soviet Union. Tripoli claimed that in fact Russia owed it about
$100 million in military contracts never fulfilled due to
international sanctions, while Russia insisted that the Libyan debt
was a whopping $4.5 billion.
To solve the problem, the Kremlin offered Gadhafi an arrangement
utilized before with Syria and Algeria to win back Russia's role as
a major arms supplier and regain its past influence in the region.
After discounting the sum Libya argued it was owed by Russia, the
Kremlin agreed to erase the remaining $4.5 billion Libyan debt. As
Russian Finance Minister Alexei Kudrin put it, "those [Soviet]
loans were purely military ones. Russia will write them off in
exchange for multibillion dollar contracts for Russian
Toward the end of 2005, Moscow agreed to erase 70 percent of
Syria's Soviet debt, reducing it from $13.4 billion down to $3.6
billion. This agreement coincided with Russia's resumption of
military-technical cooperation with Damascus. Advanced fighter
jets, SAM systems, and even possibly Iskander-E short-range
ballistic missiles (despite denials by the Kremlin) are some of the
weapons Russia is believed to be exporting to Syria. Damascus also
allowed Russia to refurbish the old Soviet naval facilities in
Tartus and Ladakiye, symbolizing the return of the Mediterranean
Squadron to its old hunting grounds.
Similarly, back in March 2006 the Kremlin agreed to write off
Algeria's $4.7 billion debt to the USSR in connection with Putin's
visit and in exchange for new arms purchases. In the largest arms
deal of Russian history, Algiers agreed to buy $7.7 billion in
weapons, including fighters, jet trainers, anti-aircraft missile
systems, and tanks.
Additionally, Gazprom agreed with the Algerian state energy
company Sonatrach to cooperate in the production of oil and LNG in
Algeria. In May 2007 Algeria agreed to buy two Russian submarines
for $400 million.
In a similar scheme, Russia agreed this February to forgive 93
percent of Iraq's debt of $12.9 billion to Russia. The remaining
$900 million debt will be repaid in 17 years. In exchange, Moscow
has requested access for Russian energy companies, including
Lukoil, to some of the country's oil and gas deposits.
Lukoil is particularly interested in the giant West Qurna-2
field it received in 1997 from Saddam. The plan is that Russian
corporations will become involved in the reconstruction of Iraq's
energy and electricity, which infrastructure the Soviets built in
the 1960s and 1970s.
Even if the Cold War may be over, the Russian bear is back in
the sands of the Middle East and North Africa, more hungry and
agile than ever. Western leaders had better beware.
Ph.D., is senior research fellow in the Russian and Eurasian
Studies and International Energy Security at the Heritage
Foundation. Dr. Lajos Szaszdi has contributed to the production of
First Appeared in the Middle East Times
Russian President Vladimir Putin began a two-day visit to Libya on April 16, the first by a Russian president to the formerly shunned country. The event was hailed by Libya's veteran leader Moammar Gadhafi as "historic, strategic and very important." Gadhafi further stated "…given that we are both producers of gas and oil, we will work together to defend our interests."
Ariel Cohen, Ph.D.
Senior Research Fellow for Russian and Eurasian Studies and International Energy Policy, The Kathryn and Shelby Cullom Davis Institute for International Studies
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