In late May, the energy giant BP announced a pact with the Libyan government, committing to a $900 million natural-gas exploration project and saying it is prepared to invest up to $25 billion in Libya (MarketWatch). BP is not the first multinational energy company to venture into Libya—among other companies, BP’s Anglo-Dutch rival Shell and the Italian company Eni already have oil operations there, and Libya’s government recently began a process of auctioning off rights to explore natural-gas resources. Still, the deal is remarkable for its size, and its successful completion prompts speculation that Libya may be opening up its economy (FT) more quickly than previously thought.

It should surprise no one that Libya’s massive energy resources, long off-limits and widely thought under explored, pique the interest of international businesses. Just in terms of oil, Libya currently produces about 1.6 million barrels per day, less than half of the 3.28 million barrels it produced in 1971, before sweeping sanctions (Reuters) crippled its exports. Libyan leader Muammar el-Qaddafi says he wants to ratchet up production to two million barrels daily by the end of 2008, and three million by 2012. That would catapult Libya back into the world’s top ten oil-producing nations, ahead of Venezuela, Iraq, and Nigeria.

Nor would development stop at crude. The BP deal focuses exclusively on natural gas, another resource with rich reserves in Libya. The Oil and Gas Journal estimates that at the start of 2006, Libya had natural gas reserves of 53 trillion cubic feet, placing it fourteenth in the world. Moreover, the article notes, Libya’s natural gas resources haven’t been thoroughly explored and its total reserves may in fact be much higher. Expanding oil or natural gas production also implies infrastructure development, and Qaddafi may require foreign investment or the participation of foreign companies to achieve this. The result could be increased attention on developing Libya’s petrochemicals and export infrastructure, in addition to new opportunities in gas and oil. Simultaneously, Libya has signaled a willingness to open up other economic sectors, announcing earlier this year it would allow a foreign company to take a 51 percent stake (Economist) in the country’s largest commercial bank.

A geopolitical thaw provides the backdrop for these economic developments. Qaddafi increasingly has shown an inclination to cooperate with the United States, agreeing to forswear development of weapons of mass destruction in 2004. President Bush reciprocated by restoring full diplomatic relations with Libya in 2006 and removing the country from the State Department’s list of state sponsors of terrorism. Now, with U.S. and European leaders keen to diversify energy sources, and emerging economies like India and China rapidly increasing global energy demand, Libya may find itself at a strategic fulcrum. The country could be a particularly useful partner for European nations, which increasingly are feeling the energy squeeze (UK Independent) from one of their foremost suppliers, Russia. Even as BP secured its landmark contract with Qaddafi, the company appeared at risk of losing a critical contract with Moscow. “Some you win, some you lose,” the Economist quipped.