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Libya
Petroleum Politics
The economic base for Libya's revolution has been its oil revenues.
However, Libya's petroleum reserves were small compared with those
of other major Arab petroleum-producing states. As a consequence,
Libya was more ready to ration output in order to conserve its
natural wealth and less responsive to moderating its price-rise
demands than the other countries. Petroleum was seen both as a
means of financing the economic and social development of a woefully
underdeveloped country and as a political weapon to brandish in
the Arab struggle against Israel.
The increase in production that followed the 1969 revolution
was accompanied by Libyan demands for higher petroleum prices,
a greater share of revenues, and more control over the development
of the country's petroleum industry (see Hydrocarbons and Mining
, ch. 3). Foreign petroleum companies agreed to a price hike of
more than three times the going rate (from US$0.90 to US$3.45
per barrel) early in 1971. In December the Libyan government suddenly
nationalized the holdings of British Petroleum in Libya and withdrew
funds amounting to approximately US$550 million invested in British
banks as a result of a foreign policy dispute. British Petroleum
rejected as inadequate a Libyan offer of compensation, and the
British treasury banned Libya from participation in the sterling
area. In 1973 the Libyan government announced the nationalization
of a controlling interest in all other petroleum companies operating
in the country. This step gave Libya control of about 60 percent
of its domestic oil production by early 1974, a figure that subsequently
rose to 70 percent. Total nationalization was out of the question,
given the need for foreign expertise and funds in oil exploration,
production, and distribution.
Insisting on the continued use of petroleum as leverage against
Israel and its supporters in the West, Libya strongly supported
formation of the Organization of Petroleum Exporting Countries
(OPEC) in 1973, and Libyan militancy was partially responsible
for OPEC measures to raise oil prices, impose embargoes, and gain
control of production. As a consequence of such policies, Libya's
oil production declined by half between 1970 and 1974, while revenues
from oil exports more than quadrupled. Production continued to
fall, bottoming out at an eleven-year low in 1975 at a time when
the government was preparing to invest large amounts of petroleum
revenues in other sectors of the economy. Thereafter, output stabilized
at about 2 million barrels per day. Production and hence income
declined yet again in the early 1980s because of the high price
of Libyan crude and because recession in the industrialized world
reduced demand for oil from all sources.
Libya's Five-Year Economic and Social Transformation Plan (1976-80),
announced in 1975, was programmed to pump US$20 billion into the
development of a broad range of economic activities that would
continue to provide income after Libya's petroleum reserves had
been exhausted. Agriculture was slated to receive the largest
share of aid in an effort to make Libya self-sufficient in food
and to help keep the rural population on the land (see Agriculture
, ch. 3). Industry, of which there was little before the revolution,
also received a significant amount of funding in the first development
plan as well as in the second, launched in 1981 (see Industry
, ch. 3).
Libya continued to be plagued with a shortage of skilled labor,
which had to be imported along with a broad range of consumer
goods, both paid for with petroleum income. This same oil revenue,
however, made possible a substantial improvement in the lives
of virtually all Libyans. During the 1970s, the government succeeded
in making major improvements in the general welfare of its citizens.
By the 1980s Libyans enjoyed much improved housing and education,
comprehensive social welfare services, and general standards of
health that were among the highest in Africa (see Education; Health
and Welfare, ch. 2).
Data as of 1987
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