American oil executives have recently been flocking to Libya, crowding the lobby of Tripoli's only luxury hotel and literally standing in line to meet local officials. The executives are bent on finding out whether this oil-rich North African country - long walled off from foreign investment because of its anti-American regime and ties to terrorist organizations - could become the next frontier for exploration. What the petroleum crowd is after lies hundreds of miles south of this enclave founded by Phoenician traders in the seventh century B.C., beneath a desert the size of Alaska that holds oil reserves estimated at over 36 billion barrels. That is enough to meet the daily imports of the United States for eight years. And that may be just a starting point. At a time when oil around the world is harder to come by, Libya is dangling the rights to explore and develop new sources of petroleum. The country holds the largest oil reserves in Africa, but as a producer it trails Nigeria and Angola. And, as every Libyan official inevitably points out, only a quarter of the country has properly been explored for oil. But that is where the problems start. Libya is a highly authoritarian state, fraught with tangled bureaucracy, rampant corruption and arbitrary enforcement of laws. Its regime is based on an elaborate fusion of socialism and Islam - dubbed the Third Universal Theory - that was Col. Muammar el-Qaddafi's answer to both capitalism and communism after he took control of the country in the late 1960's. Such tribulations are nothing new for oil executives, many of whom have previously traveled to hostile and far-flung places around the globe in search of oil. They, along with other Americans, are certainly eager to do business here: the newly opened American liaison office said it receives more than 200 inquiries a week from interested companies. In the next few months, several dozen oil companies will be watching as the Libyan government unveils the winners of new licenses that have attracted intense interest from major and independent producers. The surge in oil prices in 2004 turned the spotlight on the urgency to increase global oil supplies. The price shock underscored the lack of sufficient production capacity around the globe, stretching producers to pump at their maximum to meet runaway demand. But for oil companies that must continually replenish their production with new reserves, the exploration options are narrowing. In the Middle East, home to the bulk of the world's known oil, most countries remain shut to foreign investors. In the United States and Europe's North Sea, production from mature fields is in decline. Even in Russia, considered by many to be the most promising energy supplier in the world, access is threatened as the government tightens its grip on the local industry. The last significant oil discoveries were made off the West African coast in the 1990's, and these are being produced. So executives are now paying very close attention to a country that until recently was synonymous with international terrorism and whose leader was once infamously called a "mad dog" by President Ronald Reagan. "One of the most critical issues facing the oil industry today is access to new oil reserves, and Libya represents tremendous resources," said Clarence Cazalot, the chief executive of Marathon Oil in Houston. "There are many, many people who are descending into Tripoli to talk to the same people we're talking to," Mr. Cazalot said during a 24-hour visit here to attend a business conference and meet privately with Shukri Ghanem, the Libyan prime minister. The spotlight swung to Libya in August of 2003 when Colonel Qaddafi took responsibility for a score of terror attacks, including the 1988 bombing of Pan Am flight 103, which killed 270 people over Lockerbie, Scotland; he agreed to a $2.7 billion settlement with the families of the victims. That was followed by a deal in late 2003 with the United States and Britain in which Libya promised not to develop weapons of mass destruction. The announcements paved the way for the United Nations to lift sanctions against the country. But hurdles abound. The country remains on Washington's list of state sponsors of terrorism, which limits the exports of some technologies that American oil companies need for their work. Corruption is another problem. In its latest survey, Transparency International, an independent organization in Berlin that monitors corruption, ranked Libya 108th out of 145 countries, tied with Albania, Argentina and the Palestinian Authority. The lower down a country ranks on the list, the worse the country's corruption, according to the survey. The country still seems ill-equipped to deal with the influx of foreigners. Recently, a high-level representative from the World Bank, Yukiko Omura, who was scheduled to deliver a speech here, was denied entry at the airport because of problems with her visa. "That's not such a good start," one European business executive said. "They should be courting her, not deporting her." Three decades of competing socialism, Islam and tribal rule have damaged Libyan society. More than half of the country's workers are employed by a sprawling state bureaucracy, joblessness runs about 30 percent, educational standards have sagged, and Libyans complain they have to travel to neighboring Tunisia to get proper medical treatment. As a result, foreign investors remain cautious, said Randel R. Young, a lawyer who advises oil companies about Libya for Fulbright & Jaworski, an international law firm. And questions remain about whether the regime has really abandoned its old ways. Libya is suspected of being involved in a recent plot to assassinate Saudi Crown Prince Abdullah because he traded insults with Colonel Qaddafi during an Arab League summit in 2003. "People are treading their toes carefully," Mr. Young said. "With such a country, it would be surprising if there were no uncertainties." Most oil executives seem undaunted. "We feel comfortable enough to put our money down," said James LeJeune, a vice president for business development at ChevronTexaco, who was visiting Libya to consider investments here. "In any other country, that would fall under acceptable risk." In small ways, Libya has changed. Visitors at Tripoli's airport are greeted by revolutionary slogans for a classless society, but they can now buy French perfumes or Italian sunglasses at the recently opened duty-free shops. The airport plans to offer Internet connections for travelers. Around Green Square, Tripoli's main public area, the oversized pictures of Colonel Qaddafi that once adorned the white facades of colonial buildings are slowly giving way to ads for Pepsi Cola or Korean-made consumer products. And last year, the regime opted for a drastic change of course. Colonel Quaddafi appointed an American-educated economist as prime minister, tacitly encouraging him to loosen the state's grip, privatize government-run companies, and allow market forces to shape the economy. These policies amount to a complete reversal of its 1969 ideology. "It was clear that the government's ways weren't successful anywhere," said Shukri Ghanem, the prime minister, who is considered a traitor by the regime's revolutionary die-hards. Despite having the backing of Colonel Qaddafi, Mr. Ghanem, who holds a Ph.D. from the Fletcher School of Law and Diplomacy at Tufts University in Medford, Mass., acknowledged that his plans still face opposition from security services and revolutionary committees which he has little control over. "Some people have privileges which they hate to see changed," Mr. Ghanem said in an interview in his office in the center of Tripoli. "Lots of people prefer the status quo to having a shot in the dark." The item that tops his agenda now is the redevelopment of the country's oil industry, the cornerstone of his government's economic program. Libya's oil sector has slumped since the early 1980's. It currently produces about 1.6 million barrels of crude a day, a level that has remained mostly unchanged during the last decade. That production is less than half the peak of 3.3 million barrels a day reached in 1970. Libya's National Oil Company wants to return production to that peak level by 2010, and has estimated that it needs $30 billion in investments to expand and modernize the nation's oil industry, drill new wells and build pipelines and refineries. The country has been getting some outside help since the 1990's from European oil companies like Italy's Eni, Spain's Repsol and France's Total. These account for about 20 percent of the country's oil production. Libyan officials said that they should be able to attract big American oil companies and increase the share of foreign involvement to 50 percent of Libya's oil output. "Libya has a big room for increased production," said Mr. Ghanem, whose face lit up as he listed his country's advantages as a producer. "Libya is west of Suez, close to Europe and closer to the United States" than Persian Gulf oil producers. "It's unexplored and has good-quality oil." Libya is a relative late-comer to the Middle East oil boom. Oil was only discovered here in 1959 by Standard Oil of New Jersey, as Exxon was known at the time. By 1961, Libya was exporting its first crude; 10 years later, it ranked among the world's top 10 oil producers. But Colonel Qaddafi's regime, which toppled King Idris in 1969, put an end to the oil bonanza. Investments fell as the new government imposed tougher fiscal terms on foreign companies. While government revenue initially rose as oil prices soared, production soon slumped. Exxon and Mobil, then separate companies, withdrew from the country in 1981 as tensions between Libya and the United States grew. In 1986, the remaining companies left when President Reagan ordered American oil interests out of Libya before bombing the country. Now, these companies - Occidental Petroleum and a group made up of Marathon, ConocoPhillips and Amerada Hess, known as the Oasis group - are negotiating their return to their original oil concessions. But some executives are cautioning that increasing production will take time. "You can't simply flip a switch," said Casey Olson, a vice president at Occidental, the fourth-largest oil company in the United States. "It's a step-by-step process." Mr. Olson was one of a handful of American oil executives who traveled to Libya in recent years to inspect their original oil assets under a special waiver from the State Department. He said Libya has a lot of catching up to do after missing out on most of the industry's technological advances in the last two decades. Tony Mills, an analyst at Wood Mackenzie, an oil consulting firm in Edinburgh, Scotland, said that Libya seemed intent on regaining a front-row seat within the Organization of the Petroleum Exporting Countries. In the 1970's, Libya was one of the group's biggest hawks, pushing for increases in oil prices and leading the charge for the oil embargo that followed the 1973 Arab-Israel war. The country's future intentions are unclear, but first it needs to become a major supplier again. "Libya," Mr. Mills said, "realizes it can matter again now that it has the world at its door." PIN//NYT