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Despite sanctions, Libya holds extensive reserves

By Howard Schneider and Steven Mufson
Washington Post Staff Writer
Tuesday, March 1, 2011; 8:35 PM

Even as its oil receipts slow to a trickle and international sanctions take hold, the Libyan regime of Moammar Gaddafi can fall back on as much as $110 billion in foreign reserve holdings to fund its operations for perhaps months to come.

The reserves managed by the Central Bank of Libya would be enough to cover the country's imports for about three years, according to the International Monetary Fund, though it is not clear how much of the reserves are in the central bank's possession and beyond the reach of sanctions.

The Libyan government and the Gaddafi family have a global array of holdings - including a Hollywood production company, an Italian soccer team, valuable London real estate and billions of dollars in overseas bank deposits - that is now subject to an asset freeze imposed by the United States, the United Nations and Britain.

Even before the new round of sanctions, the revenue flowing to Gaddafi was in decline, according to traders and industry analysts.

Oil production has dropped by an estimated 800,000 to 1.2 million barrels a day over the past two weeks, relieving international companies of the need to look for ways to avoid sending money to Gaddafi or his government.

ENI, the Italian oil giant that produces about a third of Libya's petroleum, said that its production has fallen to 120,000 barrels a day, less than a quarter of its usual level, and that the oil produced is not being sold but is going into storage facilities. Occidental Petroleum said that Libyan nationals were running operations and that it was not sure how much oil was being produced currently.

A leading European oil trader, who spoke on the condition of anonymity to protect his business relationships, said Libya's state-owned oil company had sent letters of force majeure, releasing customers from purchase contracts because of the conflict and disruption in supplies.

As sharp as the rise in oil prices has been, the effect on world markets has been tempered by seasonal fluctuations. World oil demand usually falls by about a million barrels a day in the weeks between the end of winter in the United States and Europe and the arrival of the summer driving season. European refineries have, so far, easily made up lost supplies from Libya by drawing on their reserves and seeking more from places such as Saudi Arabia.

And, at least in the foreseeable future, the effect on Gaddafi's regime may be limited as well, despite the freeze on Libyan assets imposed by the United States, the United Nations and Britain, and being debated by the European Union.

The freeze covers a diverse set of global holdings assembled by Libya and Gaddafi's family in the years since an earlier set of international sanctions was lifted.

Much of the country's overseas investments are owned by the Libyan Investment Authority, a sovereign wealth fund established in 2007 to invest the proceeds of the North African country's oil revenue. Between real estate, industrial holdings and foreign bank deposits, the IMF estimates that the investment authority holds about $40 billion.

Treasury officials announced Monday that U.S. financial institutions had frozen about $30 billion of Libyan or Gaddafi-controlled assets. The officials provided no details about the nature of the holdings. However, in a diplomatic cable written by U.S. Ambassador Gene A. Cretz and released on the WikiLeaks Web site, Libyan Investment Authority head Mohammed Layas told him that the fund had deposited up to $500 million each in several U.S. banks, while the bulk of its asset investments were in Europe.

U.S. firms courted Gaddafi and his family after the lifting of the earlier sanctions, which were imposed on Libya because of its involvement in the bombing of PanAm flight 103 over Lockerbie, Scotland, in 1988. The Carlyle Group, a District-based private equity firm, hosted a high-level reception for Saif al-Islam Gaddafi in 2008. Among the invitees were Frank C. Carlucci, a former U.S. defense secretary, and C. David Welch, a former assistant secretary of state for Near Eastern affairs who currently serves an executive with the engineering giant Bechtel, according to the Web site of the Gaddafi International Charity and Development Foundation.

Carlyle officials would not comment on whether Libya has invested any money with them. At an investment conference in Germany, Carlyle executive David Rubenstein said he was not sure whether the sanctions would have any effect on Carlyle or its clients.

According to public documents and published reports in the United States and Europe, the investments by the Gaddafi family or the Libyan government include Saadi Gaddafi's $100 million stake in a Hollywood production company, Natural Selection; a 7.5 percent share in Italy's UniCredit bank; part ownership of the Juventus soccer club; and about 3 percent of the stock of the United Kingdom-based Pearson media company, owners of the Financial Times and Penguin Books.

But it is not clear how the asset freeze will affect the immediate flow of funds to Gaddafi's regime. The U.S. sanctions are extensive and would prevent, for example, any U.S. citizen or company from doing business with Libya's state-owned oil company or other government-controlled enterprises.

Some of Libya's international business partners are growing uncomfortable.

After students at the London School of Economics occupied administrative offices in protest, the university officials said they would forgo the remainder of a roughly $2 million pledge from Saif Gaddafi to the school and would set aside the about $500,000 already received into a scholarship fund for Libyan students. The younger Gaddafi received his doctorate from the school.

In an interview with the BBC, school head Howard Davies said he was "embarrassed" by the prestigious college's ties to the Gaddafi clan.

Staff researcher Julie Tate contributed to this report.

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