International oil companies in fix as real war starts in Libya

The real war has started in Libya with the allied forces pounding Gaddafi strongholds and military installations with missiles and bombs. The future of International Oil Companies (IOC) operating in Libya has come under increased pressure with this turn of events.

If Muammar Gaddafi comes out victorious in the war between the regime and the opposition, or if ultimately a stand-off ensues, meaning Gaddafi will continue to have sway over parts of the country, the IOCs will face an uncertain future. It will be nearly impossible for them to continue to do business with Libya in both these scenarios, according to IHS Senior Middle East Energy analyst Samuel Ciszuk.

Now, however, most of the IOCs in Libya are in a situation where their home governments de facto are at war with the country's regime, making it increasingly hard for them to envision returning to some form of normality should the Libyan regime in the end not crumble, says Ciszuk.

He says the allied attack has radically altered the situation for IOCs in Libya, which now will struggle to return to the country unless the regime of Gaddafi is broken. IOCs' position has become untenable unless the current regime falters completely, he says.

IOCs with upstream assets in Libya have found it difficult to navigate the quicksilver political scene in the country ever since the unrest started. The analyst notes that the IOCs had sent discreet feelers to the opposition leaders after protests broke out in oil-rich parts of the country.

The scene changed over the last two weeks as the regime took back control of many rebel-held cities and started pushing the rebels back. And the IOCs too changed tack, says Ciszuk. As the Libyan government over the past two weeks has managed to claw back control over virtually all oil and gas installations—at least nominally when it comes to the remote upstream desert areas—a few of Libya's main players were quick to start ingratiating themselves with the regime, in order to make sure that they would not be punished with expropriation or revoked contracts due to the supportive stances of their home governments toward the opposition.

As western pressure on him to quit mounted Gaddafi had threatened that IOCs from those countries will lose their contracts in favor of companies from China, India and Russia.