Libya oil stuck in legal limbo as U.N. panel shunned

Western powers eager to help Libyan rebels sell oil from territories they control are ignoring the U.N. Security Council's sanctions committee, leaving Libyan crude in legal limbo, envoys and analysts say.

Without definitive guidance on the legal status of Libyan oil from the politically divided U.N. sanctions committee, U.N. diplomats and traders say the oil could remain virtually untouchable as major trading players take care to avoid running afoul of the U.N. sanctions.

U.N. diplomats told Reuters that Security Council members eager to escalate the diplomatic pressure on Gaddafi's government -- above all France and Britain -- rushed through the two packages of sanctions and may not have foreseen how difficult the U.N. measures would make it to aid the rebels.

After the 15-nation Security Council passed the first round of sanctions against Libyan leader Muammar Gaddafi and his inner circle on February 26, it established a special committee to oversee their implementation.

Its responsibility was expanded on March 17, when the council passed a resolution imposing a no-fly zone over Libya and adding Libyan National Oil Corp, the central bank and others to a list of banned Libyan firms.

"I don't think they realized the complications the sanctions would create, and now they're trying to backtrack on the question of selling oil and on the arms embargo," a U.N. diplomat told Reuters on condition of anonymity.

U.N. sanctions committees are made up of all 15 council members and work on the basis of consensus. Russia, which is increasingly critical of NATO operations to protect civilians and enforce a no-fly zone, or any other member of the panel can block exemptions for the rebels.

One of the ideas being floated, diplomats said, was to exempt Arabian Gulf Oil Co (Agoco), a subsidiary of the Libyan National Oil Corp based in rebel areas, from the sanctions. But no delegation has formally proposed it to the committee.

"No one has contacted the sanctions committee so far to deal with these issues," a diplomat told Reuters. "There's no point in coming to the committee when the Russians, Chinese and Indians might strike any proposal down if they think it's intended to help the rebels."

Virtual Standstill

Russia, China, India, Brazil and Germany all abstained during the Security Council vote to impose a no-fly zone over Libya and authorize military action to protect civilians. Since then, Brazil, Russia, India, China and South Africa -- all council members -- have become increasingly critical of NATO actions, which they say are helping the rebels, not civilians.

The United States, Britain, France and Qatar are among the countries that are urging the sale of oil from Libya's east, where the rebels have established a stronghold. U.S. Secretary of State Hillary Clinton said on Friday that NATO allies were considering how to help the rebels get funds.

Those countries, however, have made no moves to approach the sanctions committee due to fears of a hostile reception for any proposal that could help the rebels and worries about setting a precedent for Libya's and other sanctions regimes.

If nations approach the committee with idea of selling rebel oil, it will set a precedent that any such request in future must go to the committee for guidance, envoys said.

So far, the rebel Libyan National Council has only been able to export a small amount of crude oil with the help of OPEC member Qatar. They intend to continue exporting oil to preserve what little cash they have and to secure critically needed supplies for the civilian population.

The rebels have avoided cash transactions to make sales of their oil more attractive, but they are still having trouble.

Qatar said last week that it had facilitated the sale of 1 million barrels of Libyan oil this month as well as arranged shipment of four cargoes of fuel to the rebel stronghold of Benghazi and was ready to support further transactions.

The Gulf Arab state has not provided further details on its role, but traders say they believe it helped arrange for trading houses VTOL and Tanagra to trade with the rebels.

VTOL has not commented on its Libyan transactions. Tanagra said it was in talks to lift Libyan crude from rebel-controlled areas but did not elaborate further.

One trader who considered the Tanagra cargo and refused it said: "We have no interest in the crude, even more so if it is not standard export quality or if they cannot guarantee it doesn't come from the National Oil (Corp)."

Such reluctance to handle Libyan oil will continue until its legal status is definitively clarified, traders say.

Another solution, diplomats say, could be for the United Nations to arrange an escrow account for purchasing Libyan oil, similar to one that was set up for Iraq in the 1990s.

The United Nations' "oil-for-food" program in Iraq -- which allowed Iraq to sell oil in order to buy humanitarian goods -- was hit with allegations of widespread corruption, and U.N. diplomats have said privately there was little appetite to get the U.N. back in the business of administering oil revenues.

"There is no plan now to involve the U.N. in any temporary funding mechanism for the (rebels)," a diplomat told Reuters.

Other ideas outside the U.N. include the possibility of loans for the rebels against future oil sales.

"There are hundreds of e-mails being exchanged every day to try to sort this out," a diplomat in New York said.

[Source: By Louis Charbonneau, Reuters, United States, 19Apr11]

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