Crazy like a fox

By Eurasia Group analysts Geoff Porter and Willis Sparks

When one of the world's most colorful autocrats says or does something that seems irrational, it's tempting to dismiss him as "erratic"-even as a madman. Libyan leader Col. Muammar al-Qaddafi loves to spring surprises, but he's not irrational, and he's certainly not crazy. Take, for example, his recent threat to "nationalize" foreign oil companies now operating in Libya.

Two Qaddafi-controlled state-run newspapers recently began floating the idea, a plan that would be catastrophic for foreign companies facing state expropriation of assets. In a speech delivered live via satellite to students in Washington last Wednesday (Jan. 21), Qaddafi brought the issue to a full boil by broaching the subject directly.

Some analysts dismiss the idea (and Qaddafi) as silly and irrational. It's true that nationalization of oil assets would undermine the Libyan government's oil revenue, especially over the longer term. Plans to expand oil production to 3 million barrels per day by 2012 would have to be postponed, because Libya has neither the technology nor the technical expertise to make it happen.

When oil prices reached $147 per barrel last July, it made sense for those with crude in the ground to squeeze foreign companies bidding for access to it. Now that prices have fallen to about $45 per barrel, even Venezuelan President Hugo Chavez, one of the very few world leaders who can match Qaddafi's bombast and his hostility toward foreign oil companies, is trying to attract them rather than to force them out.

Yet, Qaddafi's actions are entirely rational when put in a political (rather than an economic) context. There are three possible explanations for his latest threats.

First, Qaddafi may well be looking for an attention-grabbing way to cast himself yet again as ultimate champion of the Libyan people and guardian of the national interest-particularly given the approach of the 40th anniversary of his rule in September. Qaddafi hasn't outlasted every other autocrat in the world (save Gabon's Omar Bongo) by keeping a low profile.

Just last year, Qaddafi advanced a plan to completely dismantle the government and distribute hydrocarbon revenue directly to the population. This idea met with unprecedented public opposition and has since stalled in the committee charged with figuring out how to implement it. It's unlikely to happen-since governments rarely put themselves out of business-and Qaddafi is determined to put forward another plan that burnishes his nationalist credentials.

Second, though Qaddafi is a dictator, he must continually reinforce his position by mollifying powerful vested interests and keeping threats to his rule at bay. Nationalizing the assets of foreign oil companies will appeal to the Revolutionary Committees Movement, a powerful organization dedicated to safeguarding the ideals of Libya's revolution -- and Qaddafi's ability to protect the privileges and position of its members. The Movement feels threatened by the emergence of reformists and technocrats into positions of power within the government. The nationalization proposal sends a signal that the leader hasn't abandoned his most loyal supporters, encouraging them to continue the work of bolstering his rule.

Third, Qaddafi may believe that threats of nationalization will strengthen the Libyan government's leverage ahead of the renegotiation of oil contracts with some foreign oil companies. Over the past year, Libya earned an extra $5.4 billion dollars in additional oil revenue by renegotiating four production contracts. But the sharp drop in oil prices has weakened the government's hand. Qaddafi may be calculating that credible threats of nationalization may restore his government's negotiating clout.

In any country as opaque as Libya (there aren't many) and in which so much power rests in the hands of a single individual, it's always dangerous to forecast policy choices.

That said, a decision by Qaddafi to seize the assets of foreign oil companies would certainly be shortsighted. But the threat to nationalize is probably shrewd. That's why, despite Qaddafi's apparent passion for the idea, nationalization is unlikely to happen.