Lord Trefgarne, chairman of the Libyan British Business Council and a minister in the Thatcher government, said: "We have about £1.5bn of trade in total, of which the largest part is imports of Libyan crude oil and gas into the United Kingdom, but we had visible exports of approaching £400m last year that I guess must be at stake."
Defending British links with Libya, he said: "Trading with Britain is not a prize we award to nice nations who we like and admire. It's part and parcel of our whole life."
Although Britain is not Libya's largest trading partner, coming behind countries such as Italy, China, France and Germany, the trade is significant to the UK. British exports of goods to Libya have risen from £232m in 2007 to £377m in 2010, with imports more than doubling from £577m in 2007 to £1.29bn last year. "Invisible" trade in terms of services accounted for £399m in 2009.
British businesses in Libya should "hold their nerve", said Lord Trefgarne, who was strongly criticised by the 1996 Scott inquiry for withholding information about the secret relaxation of the guidelines for arms sales to Saddam Hussein's Iraq. He added: "We're not at the top of their list and they're not at the top of our list either, but everything counts in the present circumstances. In these financial circumstances every bit of trade is valuable."
The Government has heavily promoted Libya as a market for British business in recent years, following the lifting of trade sanctions that had been in place in the aftermath of the Lockerbie bombing in 1988.
The then Prime Minister Tony Blair led the charge to do business with the regime in 2004, during a trip to meet Colonel Gaddafi, dubbed "the deal in the desert", in which Mr Blair announced a "new relationship" between the two countries.
As the two met, Shell announced it had signed a deal worth up to £550m for gas exploration off the Libyan coast. That same year Lord (Charles) Powell, brother of Mr Blair's chief of staff Jonathan Powell, set up an offshore company to cash in on the new business opportunities. The former Downing Street adviser to Margaret Thatcher and John Major is chairman of Magna Holdings International – a Bermuda-based company that has signed a string of lucrative contracts with the Gaddafi regime.
In May 2007, Mr Blair returned to Libya and helped to seal an oil exploration deal for BP that is now worth about £900m. He also helped to secure defence contracts for two British firms worth £350m. At the same time Col Gaddafi asked for a prisoner transfer agreement. Two years later the man convicted of the Lockerbie bombing, Abdelbaset al-Megrahi, returned to Tripoli.
Mr Blair is now a consultant to JP Morgan, the US investment bank that handles the Libyan Investment Authority's liquid funds.
Some 150 UK firms operate in Libya, including British Airways and Marks & Spencer. High street stores including Next, Monsoon and Accessorize have opened in Libya and companies such as Amec, an engineering firm, and Biwater, a waste treatment company, have profited from Libyan investment. Some of Britain's biggest companies, including Barclays Bank, BP, Shell, GlaxoSmithKline and KPMG, belong to the Libyan British Business Council. Libya is one of North Africa's top performing economies, and Libya's free trade zone in Misuratah makes it an attractive destination for those seeking to export to other African countries.
Oil and gas, healthcare, construction and financial services are among the priority sectors for British companies, according to UK Trade and Investment.
Education and training has been another growing market, with more than 3,000 scholarships funded by the Libyan government for study in Britain – worth more than £160m to UK universities and colleges in fees each year. There were at least 8,000 Libyans studying at British universities last year, with more Libyan postgraduates studying in the UK than from any other Arab country.
But the violence has prompted a series of high-profile businessmen and institutions to cut their ties with the Gaddafi regime. Marco Tronchetti Provera, chairman of Pirelli, the Italian tyre-maker, and the London School of Economics are among those to have cut their ties.
Retailers M&S, Next, Monsoon and Dune were forced to close their Libyan franchise operations last week as the city of Tripoli was torn apart. In a statement, Marks & Spencer said: "We have temporarily closed our store in Tripoli as a precautionary measure." It added: "We have no plans to change our trading in Libya."
The airline BMI has no plans to abandon its interests there either. A spokeswoman said: "Tripoli is a part of our route network and as soon as it is viable for us to return, we will."
The links through business permeate all parts of British society – from academia to the Royal Family. Prince Andrew has made numerous visits to Libya promoting British trade, and the Libyan Investment Authority has invested millions into UK property. It owns millions of pounds' worth of property in the City of London. The LIA has also invested in companies such as Pearson Group, owner of the Financial Times. Just last year, the Libyan Foreign Bank bought out HSBC's stake in the London-based British Arab Commercial Bank.
Additional reporting by Anna Slater and Claire Smyth
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