Libya's economic war rages in southern Europe

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Even as the Libyan war just gets underway, the economic war over Libya's treasures has already begun.

Italy, Libya's biggest European investor, is at the centre of the economic war. On Monday Italian foreign minister Franco Frattini threatened to deny the allied forces access to Italian airbases unless command of the operation were shifted to NATO. At the moment, the French, British and Americans are calling the shots (Italy's bases are closed to Libyan operations; the Canadian CF-18 fighter-bomber pilots are flying from Sicily).

Why does Italy cherish a NATO takeover? Because the Italians do not want the Libyan rebels seeing the air war as largely an Anglo-French effort. Italy fears that, should the rebels succeed in overthrowing Moammar Gadhafi's regime, they will repay the British and the French by giving them the most valued reconstruction and oil projects. If NATO takes control, Britain and France's influence over rebel loyalties would be diluted, putting Italy on a more equal footing for the post-war reconstruction spoils, whenever that may come.

France has been resisting transferring military control to NATO. On Wednesday, however, France softened its position. It appears NATO will take over, though political control will go to a coalition that is to include non-NATO members Qatar and United Arab Emirates.

Italy, which ruled Libya as a colony for 30 years, until the Second World War, is especially worried about France muscling into the Libyan economy. Italy considers Libya part of its economic landscape. Eni, the Italian national oil company, and Europe's fourth largest oil player, is the biggest investor in Libya. Before the war started, Eni was pumping about 250,000 barrels a day of Libyan oil, most of which went to Europe. Last year, according to Morgan Stanley research, 32 per cent of Libyan oil exports went to Italy (France, Germany and Spain were the other largest importers).

But French oil giant Total is also on the ground in Libya; it pumped about 50,000 barrels a day until the war virtually eliminated exports. Italy would go into a rage if the rebel forces, should they overthrow Ghadafi, were to reward Total with lavish oil concessions and investment opportunities in other projects, like highway construction, that the Italians consider their right.

Economic relationships between France and Italy are already strained. The Italian government this week is plotting ways to thwart unwanted foreign takeovers. One foreign investment in particular riled the Italians, and it came from France. Groupe Lactalis, the privately owned French dairy company, has just amassed a 29 per cent stake in Italy's Parmalat, one of the world's biggest dairy, juices and yogurt makers (Parmalat is a big brand in Canada). The Italian government fears it will lead to a full-blown takeover, one that would transfer control of a company they consider a national and international champion to France (only the Italians would consider food a strategic resource, but that's another story).

While NATO's control of the Libyan air war will no doubt please Italy, there is a nightmare scenario for the Italians. If Gadhafi defeats the rebels, or even retains control of the western part of Libya, he will no doubt retaliate by shredding Italian investments in his territory. Before the war, Gadhafi and Italian prime minister Silvio Berlusconi were friends. Now they are enemies. Eni, the Italian oil company, is still nervous.

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