Italy, Libya Mend Fences
By Dominic Moran for ISN
Libyan leader Muammar Gaddafi's recently completed three-day visit to Rome was his usual mix of hugs and slaps with pledges of bilateral cooperation accompanied by the usual theatrics.
Facing opposition to his visit from left of center legislators, Gaddafi stood up the chamber, refusing to turn up for his scheduled parliamentary address.
Nevertheless, the visit signaled the completion of a turnaround in the two countries' often fraught relations.
Here, the focus is on Italy's colonial occupation of Libya from 1911. In a highly symbolic move, Gaddafi included in his Rome party the grandson of Omar al-Mukhtar, the revered leader of the anti-occupation struggle, hanged by the Italian colonial authorities in 1931.
Italian pretensions reached an apogee under Mussolini with moves to incorporate Libyan holdings into the state and the transplantation of around 110,000 Italians to Libyan coastal cities by 1940.
Most remaining Italians were expelled after Gaddafi's 1969 seizure of power, so his Rome meeting with their representatives - during which he offered repatriation - underlines that Libya is seeking a fresh start in bilateral relations. It also may constitute an indirect signal to Israel given that many of those ejected were Jews.
All this was made possible by the Berlusconi government's offer last August of a 25-year US$5 billion compensation package for past injustices.
The potential payoff for Italy is immense. Gaddafi pledged in Rome that Italy would have priority in Libya's €11.8 billion (US$16.3 billion) foreign investment plan – crucial to the redevelopment of Libya's dilapidated public sector and in bolstering oil and gas extraction.
The Guardian external pagereports that Italian investors are already being offered a variety of sweeteners including a 5-year tax break on profits and discounted energy.
According to the external pageLibyan Investment Fund, 52 Italian companies are now operating in the country – the largest representation of any single country. Gaddafi held talks in Rome with the head of Italian energy giant Eni, which focused on the extension of joint ventures with Libya's National Oil Corporation (NOC) and on boosting Libyan gas supplies to Europe.
State-controlled Libyan funds already have significant investments in Italian firms including Eni and Unicredit. Eni signed fresh oil and gas deals with NOC last year running through to 2042 and 2047 respectively and remains the largest player in the Libyan gas market. Construction company Impregilo and electricity generator Enel are also external pagereportedly drawing interest from the Libyan Investment Authority.
For the EU, the development of Maghreb gas supplies is crucial in efforts to diversify supply and undercut Russian market predominance.
Italy now relies on Libya for 25 percent of its oil imports and 33 percent of its gas supply. Gaddafi pledged in Rome that gas and oil deals with other foreign partners would not be made at Rome's expense.
However, the progressive extension of Libyan relations with France, Russia, the US and others are likely to progressively undermine Italy's favored nation position.
Libya has a clear interest in technology and infrastructure indigenization (investment funding is usually premised on joint venture development) that will also likely diminish the influence of Italian partners in the long term.
Nevertheless, a short-term, inside run at key energy contracts and related Libyan investment moves will almost certainly prove a major boon for the slumping Italian economy.