With only one five-star hotel in the country, some speculated whether Libyan Leader Moammar Gadhafi would be pitching one of his trademark luxurious tents for Gerhard Schröder.

The occasion is certainly a special one. After a series of concessions and policy changes made by Gadhafi's government in the past year, this is the first time the German leader is visiting the country.

"The change of his politics is really remarkable," Schröder told reporters at Tripoli airport Thursday evening, adding that the Libyan government's new course deserves "every support."

During Thursday evening's three-hour banquet in Gadhafi's Bab Al Azizia compound, Schröder invited his host to visit Germany -- a gesture underscoring Berlin's willingness to welcome Libya back into the international fold.

A Westward-looking despot

The Gadhafi that Schröder met is by no means the same man who railed against the West during his long reign as Libya's leader. Once the target of US bombs in the 1980s, Gadhafi has gone from preaching a middle road between capitalism and communism to one of the Middle East's most Westward-looking despots.

His announcement in December 2003 that Libya would dismantle its weapons of mass destruction programs was a massive step towards thawing relations with the United States.

Nonetheless, according to government sources, Gadhafi allegedly stressed during Thursday's talks that improving Arab-European ties was an important and necessary means of creating a counter-weight to US-dominance within the international community -- a call rejected by Schröder, who emphasized that Germany valued its favorable relationships with both the US and Russia.

The talks also included discussion of Libya's demand for German compensation for mines laid in the North African country during World War II. While Gadhafi pointed out that Libya's mines have claimed many lives over the last decades, Schöder insisted that given the promising turn German-Libyan relations have now taken, it would be wrong to concentrate on the past.

Improving German-Libyan relations

Gadhafi's unexpected turn-about was recently consolidated when the European Union lifted its 18-year arms embargo against the country on Oct. 11. The ban was initially put in place because of the country's role in state-sponsored terrorism, including the 1988 bombing of a Pan Am flight over Lockerbie, Scotland and an explosion at the "La Belle" disco in Berlin (photo) that killed three.

After the rapprochement with the US earlier this year, Libya smoothed its ties with Germany by agreeing to pay $35 million (€28.3 million) in compensation to the victims of the disco attack. Shortly afterwards, Schröder announced his visit.

"It's about taking this positive development and making it irreversible," government sources told news agency AFP.

Chancellor brings company

But the main focus of Schröder's visit is clearly business.

Early on Friday, he headed into the Libyan desert to visit a new Wintershall oil and gas exploration project some 1000 kilometers south of Tripoli with executives from the German company, which is part of the BASF Group. The company has already invested almost €1 billion ($1.2 billion) in Libya with what it has described as positive results.

The two dozen German business representatives accompanying the chancellor on his trip are eager to network in a country with great economic promise.

"Libya is a small yet underdeveloped market," Jochen Clausnitzer, the Middle East expert at the Association of German Chambers of Commerce and Inudustrie, told DW-RADIO. "So there is plenty of opportunity in the country."

Clausnitzer said the country has an estimated $20 billion in currency reserves, built with the help of high oil prices, just waiting to be spent on various projects.

"The prospects are rather bright for German companies," he said.

Oil potential massive

US oil companies and their competitors from France and England have already been itching to get back into oil fields sanctions forced them to abandon decades ago. On Jan. 10, 2005, the Libyan Oil Ministry will hand out 15 licenses for new drilling fields in the country. The country's potential is estimated at 47 billion barrels of oil.

Much work is already being done to improve the country's archaic oil infrastructure. The 1.4 million barrels the industry currently produces should be increased to 2 million in the coming years.

German companies, far from world leaders in the oil business, are looking to get a piece of the pie in other areas. The government in August helped them by re-instituting government-backed export guarantees for companies looking to invest in the North African country. The resumption of the guarantees has already caused bilateral trade to jump 12 percent this year, to €600 million ($742 million) this year.