Libya bars Italy from oil sector

By PAUL SCHEMM | July 14, 2011 | 9:44 AM EDT

TRIPOLI, Libya (AP) — Libya on Thursday barred Italy from future participation in its oil sector because of Rome's role in the NATO airstrikes on the country, a move that raised serious questions about investments by Italian oil giant ENI SpA in the OPEC member state.

But the North African nation's prime minister left the door open for other alliance nations to re-evaluate their roles in the strikes or risk facing the same fate.

"The Italian government needs to totally forget about Libyan oil and every agreement we signed in the past," Al-Baghdadi Al-Mahmoudi told reporters in the Libyan capital. "ENI will have to look elsewhere for business."

NATO has been striking forces loyal to Libyan leader Moammar Gadhafi and regime-linked military sites under a U.N. resolution aimed at protecting civilians. But the civil war pitting the Tripoli government against rebel fighters has hit a virtual stalemate, with neither side able to make significant advances over the past few weeks.

Libyan officials have warned nations involved in the NATO campaign that they could be barred from investing or participating in the country's oil sector if they continue to side with the rebels. But Italy — Libya's former colonial master — appears to be the first country to be formally barred.

"If (Italian premier) Silvio Berlusconi says he was pressured (by the coalition) to attack Libya, I was pressured by the Libyan people to cut ties with Italy," said Al-Mahmoudi. "The countries that attacked us should not expect us to deal with them in the future, especially with regard to oil."

Al-Mahmoudi said Italy was singled out because Rome had signed a friendship agreement with Tripoli in the past that barred any aggressive acts. Italy's position is that the treaty is "suspended" as a result of the Libyan regime's attacks on its own population.

Libya sits atop Africa's largest proven reserves of conventional crude. But months of fighting between pro-Gadhafi forces and the rebels have essentially halted what was once about 1.6 million barrels per day of oil output — a drop that helped propel crude prices well beyond $100 per barrel earlier in the year.

In the years since Libya re-emerged from more than a decade of international isolation for Tripoli's support of terrorism, Western oil giants rushed to tap into the country's reserves, with ENI among the most active in the country.

But the outbreak of fighting in February led to new international sanctions that targeted, among other things, Libya's oil sector. International companies have largely pulled out their foreign workers and fields are idling well below their production capacity because of the exodus of workers.

"Those who come one step toward us, we will come two steps toward them," he said. "But Italy is finished."