RABAT, Sept 1 (Reuters) - An unpredictable succession,
suspicion of foreign influence, diplomatic rows, policy
uncertainty and the lingering threat of social unrest all pose
potential risks for investors in oil-producer Libya.

Here are some risk factors to watch.

UNCERTAIN SUCCESSION

Muammar Gaddafi has led Libya for more than 40 years, longer
than any living African leader. He is in his late 60s, but there
is no framework for his succession and he has carefully avoided
designating a successor. Analysts say he appears to be in good
health but that, when he dies, years of instability could follow
as competing groups and relatives struggle for supremacy.

The liberal-leaning Saif al-Islam Gaddafi, who took a
central role in ending Libya's stand-off with the West, has the
highest profile among Gaddafi's sons but lacks any official role
and Libya experts say he has little support from the army, whose
endorsement is seen as vital if he is to hold power.

Two other sons, Mutassim and Khamis, are both thought to
have stronger power bases in the military. Their policy views,
including on the economy and outside investment, remain unknown
but Libya watchers see Mutassim -- Libya's National Security
Adviser -- as close to the old guard that opposes many of the
reforms proposed by Saif al-Islam.

What to watch:

-- Whether Saif al-Islam becomes head of the Social Popular
Leadership, making him the country's de facto second in command.
Analysts say he turned the job down last year because it might
still not give him the power he needs to push through reforms.

-- Supporters of Saif al-Islam say he plans to try to have a
constitution adopted to set up formal institutions instead of
the complex web of informal spheres of influence on which his
father's system is based. If he goes ahead with his plan, that
could indicate he is staking a stronger claim to the succession.

-- The fluctuating fortunes of Saif al-Islam's media and
other projects. One example: two newspapers allied to him
stopped publishing in January, citing problems with the
authorities, but they were back on newsstands in July.

BUSINESS OPPORTUNITIES:

As oil money swells the coffers after years of austerity,
foreign firms are jostling for billions of dollars of potential
deals in housing, transport infrastructure, telecoms and public
services. But the environment is fraught with dangers, from
bureaucratic lethargy to a captive judiciary and risks tied to
land ownership and changing business rules.

Business-friendly reforms are stalled and Libya sits in
130th place out of 180 countries in Transparency International's
2009 Corruption Perceptions Index.

Diplomatic hiccups can quickly have a devastating effect on
companies operating in Libya. Switzerland's ties with Libya
broke down after the brief arrest of another son of Gaddafi,
Hannibal, in Geneva in 2008 and the dispute drew in the European
Union, United States and major energy firms.

Libya stopped oil exports to Switzerland and withdrew assets
from Swiss banks. In March this year, it imposed a trade and
economic embargo on Switzerland, dealing a blow to Swiss
business interests in Libya. The two governments agreed to patch
up relations and a Swiss businessman caught in the dispute was
allowed home after being held for nearly two years in Tripoli.

Libya showed it was even prepared to challenge its old foe
the United States, when it threatened U.S. oil companies with
unnamed consequences in response to caustic comments about
Gaddafi made by a Washington official. The official later
apologised.

What to watch:

-- Rising oil prices would give the government more money
for its investment programme. But they could also dull the
incentive to make Libya more attractive for investors.

-- Any signs that smaller companies are beginning to invest
in Libya. So far it is viewed as the preserve of big
multinationals that benefit from intense government lobbying and
are diversified enough to spread their risks.

-- Any sign that Saif al-Islam's reformist camp is weakening
might encourage the government of Prime Minister Al Baghdadi Ali
al-Mahmoudi to take a more protectionist line on inward
investment and tighten terms for foreign business.

-- Signs the leadership is trying to forge a coherent vision
for the economy. The country's state-run markets are now crammed
with foreign consumer goods but a nebulous system of central
economic planning and wealth distribution remains. Gaddafi still
cherishes his vision of Islamic Socialism, with its system of
grass-roots government by town-hall committees in which
political parties are banned. Saif al-Islam has commissioned
successive reform plans from Western consultancies but their
free-market vision is resisted by the powerful old guard.

TOXIC PAST

Libya was for decades the subject of international
sanctions, and Western governments have accused it in the past
of seeking weapons of mass destruction and of having ties to
violent militant groups. Muammar Gaddafi renounced these
policies and, soon after, sanctions were lifted.

Most Western countries have shown a willingness to play down
Libya's past in return for lucrative deals. However, Libya's
past can come back to haunt firms who do business there. A panel
of U.S. Senators wants to hold a hearing to establish whether BP
had any influence on the British decision to release from
prison Abdel Basset al-Megrahi. He is the Libyan intelligence
officer convicted of the 1988 bombing of Pan Am flight 103 over
Lockerbie, Scotland.. BP said in August it was delaying plans to
drill offshore in Libya until later this year. It did not say
why.

What to watch:

-- Will the Senate investigation lose steam now that BP has
successfully capped the leaking oil well in the Gulf of Mexico
which triggered an outpouring of anger against the company among
U.S. politicians?

-- Will other international firms come under pressure for
doing business with a country with such a chequered past?

-- How will politicians in Europe and the United States
respond as Libya's sovereign wealth fund, which controls about
$65 billion, ramps up its investments in developed countries'
flagship firms? Some members of the ruling coalition in Italy
called for an investigation after Libya increased its total
interest in lender Unicredit to 6.7 percent.