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Russia Plays Damage Control In Last-Ditch Effort To Save Business Interests In Libya

Then Russian President Vladimir Putin (left) and Libyan leader Muammar Qaddafi at Qaddafi's residence within the Bab al-Aziziya barracks in Tripoli in April 2008
Then Russian President Vladimir Putin (left) and Libyan leader Muammar Qaddafi at Qaddafi's residence within the Bab al-Aziziya barracks in Tripoli in April 2008
MOSCOW -- Russia's belated recognition of Libya's provisional leadership on September 1 carried a hint of desperation.

For months, Moscow had refused to recognize the National Transitional Council (NTC), was reluctant to distance itself from Muammar Qaddafi, with whom it had good relations, and was critical of NATO's military campaign to assist rebel fighters.

But with the NTC now in control of most of Libya, Russia fears that it could lose billions of dollars in energy, defense, and infrastructure contracts it had negotiated with the ousted Qaddafi regime.

Russia's policy toward the conflict has appeared schizophrenic from the very start. Moscow did not veto the United Nations resolution authorizing NATO air strikes, but it also declined to vote for it. Shortly thereafter, Prime Minister Vladimir Putin called the Western alliance's bombing campaign "a crusade" -- which drew a rare public rebuke from President Dmitry Medvedev.

The ambivalence, analysts say, was an effort to protect Moscow's interests in Libya regardless of the conflict's outcome.

But as Pavel Baev of the Oslo-based International Peace Research Institute notes, Russia's business deals, which were concluded in close cooperation with Qaddafi himself, were in jeopardy as soon as it became apparent that the rebels would win.

“In many ways, [Russia's] line was doomed to failure from the very beginning," Baev says. "I don’t think there were any doubts that it would end in any other way. The losses as far as economic interests are concerned were in the cards from the start because all of them were negotiated by Qaddafi and through Qaddafi.

"In this respect, the moment the uprising started, those investments had to be written off. No amount of diplomacy would have saved that.”

Lion's Share Of Contracts

By the time Russia finally recognized the NTC on September 1, international officials were already gathering in Paris to discuss Libya's economic and political future. Moscow's envoy, Mikhail Margelov, was present at the conference and pledged to defend Russia's economic interests in the country.

But most observers now expect that France, Italy, and Britain, who played leading roles in the NATO intervention, are poised to snap up the lion's share of Libya's international contracts.

Despite the recognition of the NTC, which came four days after the Libyan Embassy in Moscow officially raised the rebel flag, Russian officials continued to insist that the NATO air campaign, which was initially authorized to protect civilians, had exceeded its UN mandate by helping the rebels overthrow Qaddafi.

Russian Foreign Minister Sergei Lavrov speaks to students at the Moscow State Institute of International Relations in Moscow on September 1.
Speaking to students at the Moscow State University for International Relations on September 1, Russian Foreign Minister Sergei Lavrov condemned the Atlantic alliance.

"However, in the fulfillment of the resolutions on Libya, NATO members and some other states flagrantly violated the principles of the supremacy of law, disregarded the initiatives of the African Union and the United Nations, and increased the number of civilian casualties," Lavrov said.

Moreover, a statement on the Foreign Ministry's website, where the NTC recognition was announced, stressed that Russia believed the contracts negotiated with the Qaddafi regime should remain in force.

"We proceed from the position that previously concluded contracts and the sides' other mutual obligations remain between the two states and will be implemented in good faith," the statement read.

$4 Billion Lost

Russia's state arms exporter, however, has already lost an estimated $4 billion in Libyan contracts after an arms embargo was imposed on Libya by the UN Security Council in March.

And other deals also appear to be at risk.

Russian state-run natural gas monopoly Gazprom, for example, has invested $200 million in energy exploration in Libya over the last five years.

Oil firms GazpromNeft and Tatneft also have exploration and extraction contracts worth billions of dollars, including recent deals to expand existing development projects.

And Russian Railways had secured a $3 billion contract to build a high-speed rail link from Sirte to Benghazi.

Many of these contracts were either signed in Qaddafi's presence or were organized by him personally. Russia's state news agency, ITAR-TASS, estimates that the country could lose as much as $10 billion in business if Libya's new leadership challenges the legality of the existing contracts.

In addition to seeking to protect its business interests in Libya, observers say Russia's ambivalence over the conflict was rooted in a wariness of Western-backed revolutions on one hand and a desire to be in sync with the international mainstream, which sought Qaddafi's ouster.

This was evident in Lavrov's comments at the Moscow State University for International Relations. "The experience of Iraq, Afghanistan, and Libya, as well, shows that, in the end, only the people themselves can choose the future of their countries," he said, "while armed external interference in internal conflicts creates a risk of escalation of the confrontation in these parts of the world. If this sort of projection of force becomes more common, there will arise a real threat of chaos in international relations."

'Very Problematic Position'

Meanwhile, analysts caution that it is not yet entirely clear who will turn out to be the big winners once the dust has finally settled and Libya's postconflict arrangements come into place.

"In this respect," Baev says, "business in Libya is a very problematic proposition for anybody, whatever side of the conflict you have taken. It's problematic for Italy, for France. It's not only Russia that has lost there. Seriously. It's one of those cases where it is very difficult to pick winners.

"For that matter, it is difficult to say that NATO has scored a victory because the performance was so unconvincing that the organization hardly improved its credibility and coherence."

Likewise, Aleksandr Konovalov, head of the Moscow-based Institute of Strategic Analysis, argues that Russia's ambivalent approach could end up paying off in the long run.

"Russia has conducted itself fairly reservedly on the one hand, allowing the resolution on military action," Konovalov says, "and on the other hand condemning the way it was carried out. In that way, it has been respectful to the Arabs but also met halfway with the West.

"You can't sit between these camps for too long, but you can for a little. And Margelov is in Paris today -- Russia is not refusing to participate. We have calculated on making the train, even if we are not in the first carriage.”

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