Squeezed by the United States boycott and the world oil slump, Libya has for the first time publicly retreated from its hard-line oil pricing policy.
Libya's gesture was made to her largest trading partner and former colonizer, Italy, following a year-long economic dispute and severely strained diplomatic relations between the two countries.
In a recent contract signed with Italy's state-owned energy concern, Ente Nazionale Idrocarburi (ENI), Libya conceded to grant Italy an interest-free loan , which will effectively reduce the price of Libyan oil $2.50 below the OPEC price.
Italian officials say it is the first time Libya has made such a concession to a Western trading partner. Unconfirmed reports in Tripoli hint, however, that similar accommodations have been made with Eastern European countries.
''It's a recognition that, given the current prices of competing crudes, the Libyans are adjusting themselves to the marketplace,'' said one highly placed oil industry executive. Libya, which with Algeria is OPEC's most expensive oil producer, is the most adamant opponent of price rollbacks.
The fact that Libya's second-highest ranking leader, Maj. Gen. Abdul Salam Jalloud, pressed for the Italian meeting and eventually agreed to the conditions , which the Italians find highly satisfactory, signaled to Italian officials that Libya was experiencing severe cash flow problems.
Reports reaching Trade and Foreign Ministry officials say that Libya's monetary reserves, estimated a year ago before the oil slump at $15 billion, have dropped to a maximum $8 billion. Likewise, oil production has plummeted from 1.5 million barrels a day last July to present estimates of 200,000 to 300, 000 barrels a day.
In return for a commitment from Italy to purchase an average 100,000 barrels of Libyan crude at the OPEC price of $35.35 for the last six months of the year, Libya will give Italy four years to pay 15 percent of the purchase with no interest charges. This arrangement allows the Libyans to maintain officially they are not deviating from the OPEC price. At the same time, it allows them to sell their oil at competitive market prices.
Although Italy refused in March to go along with the Reagan administration's economic boycott of Libya for fear of isolating the troublesome power, Italy has had its own problems with the Islamic regime of Col. Muammar Qaddafi.
As a result of the talks, Libya has also signed an agreement promising to resume paying debts owed to Italian manufacturers. Libya abruptly halted these payments when Italy stopped all purchases of Libyan crude except for ENI's equity share, to protest Libya's steep prices.
Libya later offered to barter oil in exchange for the debts, informing some companies it was the only alternative. But Italian manufacturers, objecting to what they considered blackmail, would have nothing to do with the Libyan oil.
Omar, a chandelier manufacturer in Palermo, has $4.7 million in unpaid bills stacked up. The company turned down a tanker load of Libyan crude valued at $6.2 million even though it has laid off most of the 165 employees. Other small and medium-size companies are on the brink of bankruptcy because of Libya's action.
Confindustria, the Italian manufacturers association, surveyed members and found 157 had outstanding credits to Libya totaling $1.2 billion. Libya claims the debt is half that total.
Italian and Libyan officials will review the outstanding debts on a case-by-case basis to determine the total amount owed. Libya has agreed to retire the entire debt within the next six months.
Officials here say Libya has been exerting the same kind of pressure on other countries to buy high-priced Libyan crude by withholding payments and offering barter deals. West Germany, France, England, and Poland are some of Libya's other targets. However, since Italy was until last year Libya's second-biggest oil customer (after the US), the decision to diversify oil supplies and oppose Libya's prices dealt a severe blow to Libya.
Italy cut back Libyan oil purchases from 300,000 barrels a day in 1980 to 60, 000 today. Libya wants Italy to resume purchases to the 1981 levels of 200,000 a day.
''The problem is not over,'' said a top Foreign Ministry official. ''Libya still refuses to recognize the difficult situation in which her pricing policy puts her.''
Diplomatic relations between Libya and Italy have been equally troubled. Following the Gulf of Sidra incident last August in which US F-14s shot down two Libyan fighter planes, Qaddafi threatened to attack nuclear arms depots in Sicily if similarly provoked again. Italy replied it would take every defense precaution possible against threats from North Africa. Italy then cut off all arms sales to Libya.
Qaddafi called the Italian politicians ''fascists,'' and allegedly sent a hit squad to Rome to assassinate US Ambassador to Italy Maxwell Rabb. Shortly thereafter, Italy intercepted a Libyan passenger plane, which was later reported to have been carrying Qaddafi from Belgrade to Tripoli. The incident caused Libya to accuse the Italians of collaborating with the United States to kill the North African leader.