We recently noted an internal shake-up in the Libyan regime that seemed to signal a tilt back to the sidelined hardliners. This seems not to have affected Washington's plans, announced today, to restore diplomatic relations. This may actually reveal something about a strategic shift underway in Washington—away from the hubristic neocons, with their ambitions to remake the world, and back towards pragmatists (typified by the Trilateral Commission) who believe in wooing recalcitrant regimes into the pro-West fold rather than overthrowing them. Note that Washington appears to be racing for Qadaffi's good graces with Hugo Chávez, who would doubtless woo Libya (and its oil) for his Third Worldist agenda...

First this, from Reuters, May 15:

WASHINGTON - The United States' move on Monday toward normalized relations with OPEC member Libya should help the African nation in its quest to expand its crude oil production capacity, experts said.

Culminating a years-long rapprochement, Washington will reopen an embassy and remove Libya from a list of state sponsors of terrorism, rewarding the longtime pariah nation for scrapping its weapons of mass destruction programs.

Libya produces about 1.6 million barrels per day of crude oil, which puts it toward the rear of the pack of OPEC's 10 members. Led by the one-time U.S. antagonist Muammar Gaddafi, Libya badly needs foreign investment in its energy industry, estimated at about $30 billion. Libya has not pumped above 2 million bpd of oil since the 1979 oil price shocks.

The lifting of sanctions will make it easier for U.S. companies to ship in high-tech gear that could breathe new life into Libya's fields, many of which have languished from two decades of underinvestment and neglect.

So-called enhanced oil recovery projects on existing fields are one of international majors' best chances to play a role in boosting Libya's capacity in the near term, experts said.

"The quickest return we are likely to see is the acceleration of negotiations on enhanced oil recovery from Libyan oil fields which can bring new supplies to the market in the next two or three years," said David Goldwyn, an energy consultant and former government official.

"The normalization (of diplomatic relations) will mean that the export of these enhanced recovery technologies ... should happen," echoed Charles Esser, an analyst at the U.S. Energy Information Administration.

Technologies used to boost crude oil flows by injecting steam or other liquids deep into underground oil reservoirs, as well as techniques for drilling horizontally, could see an uptick in Libya, Esser said.

For example, sagging production at the el-Bouri oilfield off Libya's western coast -- its largest producing oilfield -- could be revived with such equipment, the EIA said.

El-Bouri produces about 60,000 barrels per day of oil, less than half of its 1995 output, mainly because of an inability to import enhanced oil recovery equipment, the EIA said.

Ali Aujali, chief of the Libyan Liaison Office in Washington, said lifting sanctions will put U.S. oil companies on an equal footing with other international oil firms competing for the rights to drill in Libya.

"All the oil companies need the full relations between the two countries because there are still some restrictions on certain technology the American countries need very badly to use in Libya," Aujali told Reuters. "Now I think they can compete with the other companies and they can go ahead with their job in Libya."

U.S. oil companies like Marathon Oil Corp. (MRO.N: Quote, Profile, Research), ConocoPhillips (COP.N: Quote, Profile, Research) and Amerada Hess Corp. (AHC.N: Quote, Profile, Research) which returned to Libya last year after a 19-year absence, will face less red tape to ship oil field gear to Libya, Goldwyn said.

Now this, also from Rueters, May 15:

TRIPOLI - Venezuelan President Hugo Chavez, whose socialist course has won him the opprobrium of Washington, will visit Tripoli on Tuesday for talks with the Libyan leader who once bore the brunt of U.S. disapproval.

Muammar Gaddafi, whose country like Venezuela is a major oil producer, has in recent years toned down fiery anti-American rhetoric and opened its industry to Western investment. Chavez, a self-styled socialist revolutionary, has by contrast led a campaign to tighten state control over the energy sector.

Libyan officials said Chavez would arrive in Tripoli after a stop-over in close ally and fellow OPEC member Algeria, where he is due to arrive late on Monday before meeting President Abdelaziz Bouteflika on Tuesday morning.

Analysts said the Libyan talks were likely to focus on energy industry knowledge sharing but that, with oil producers pumping as much as they can and oil prices near records, collaboration on output quotas was unlikely to top the agenda.

Venezuela is the world's No. 5 oil exporter and relies on crude for about half of state revenues. High oil prices have helped Chavez pour billions into projects for the poor as part of his proclaimed socialist revolution.

Libyan officials had said earlier that Chavez was due to arrive on Monday. They gave no reason for the change. He earlier visited Vienna -- where he attended an EU-Latin American summit -- Rome and London.

See our last posts on Libya and Venezuela.