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So now Colonel Gaddafi's maverick son Saif has today come clean and suggested what we all believed to be the case.
That Gaddafi's petro dollars and secret talks between Tony Blair and Libya were linked to the convicted Lockerbie bomber Abdelbaset Ali Mohmed al-Megrahi, who was released last week.
The Foreign Secretary David Miliband feigned shock when it was put to him that we seem to have swapped a terrorist for lucrative oil contracts.
"That is a slur on myself and the Government," he protested, rather in the earnest, self-righteous manner of a school prefect being asked if it is true that he had been seen smoking behind the bike sheds.
Before Saif's admission there was outrage in both Westminster and the Scottish parliament last week. There will doubtless be more to come.
However, one can image the muted relief and self-congratulations to be found in a leafy corner of St James's where BP has its head office.
The Libyan Investment Authority, flush with tens of billions of pounds of oil funds, is also said to be considering St James's Square for its new European headquarters.
Those who relish the ironies of history must hope those who oversee Colonel Gaddafi's oil revenues will choose this most elegant of all London squares, though its recent history has been dark.
It was here in 1984, during a peaceful demonstration outside the Libyan embassy, that WPC Yvonne Fletcher was fatally shot by a "person unknown" firing from inside the diplomatic compound.
The embassy was encircled by armed police, and then the British mission in Tripoli was similarly threatened: the murder led to the severing of diplomatic ties.
There is a plaque to the slain policewoman in the centre of the square, and the memorial is just about visible from the premises of BP, easily Britain's most important corporate player in Libya.
BP has long enjoyed extremely close links with government.
When Anji Hunter, Tony Blair's "gatekeeper", left Downing Street, it was to join BP as head of corporate affairs.
And, when BP signed one of the biggest exploration deals in its history with Libya two years ago, Blair was on hand to oversee it.
There is a photograph of the event on the BP website showing the chief executive Tony Hayward signing the agreement, with a grinning Blair, hands folded, in the background in a supporting role.
It is clear from that photograph where the real power lies.
Yet it was Lord Trefgarne, a former Conservative minister and now chairman of the Libyan British Business Council, which lobbies for business interests in Tripoli, who first candidly admitted that the release of al-Megrahi had opened the way for Britain's leading oil companies to pursue multibillion-pound oil contracts with Libya.
Previously, oil contracts had "not moved as fast as we would have hoped and expected" since Blair had his first meeting in a tent with Colonel Gaddafi five years ago and sealed restored relations. They will certainly move faster now.
The story of Libya's rehabilitation from desert pariah state to valued trading and investment partner should be a set text for students studying the art of public relations.
And, because Libya's relations with America are still fraught, the diplomatic comeback is being made in London.
This is a government forced to accept "responsibility" for the worst terrorist outrage in British history, the bombing of Pan Am 103; it also supplied the IRA with the Semtex explosives responsible for some of the most serious Republican attacks, and has refused to hand over the person responsible for WPC Fletcher's murder.
Its ruler is an eccentric despot who has oppressed his people for 40 years since taking power in a military coup.
The country is so under-developed that almost everything manufactured has to be imported; it is so arid that it grows very little of its own food.
It is also one of the few African countries, along with Ethiopia, that has the great historical misfortune to have been colonised by Italy, arguably the most brutal and inept colonial power of the 20th century.
Without its vast oil and gas reserves, the PR makeover would not even be attempted.
But for all the incompetence of its administration, and brutality of its rule at home and abroad, Libya and her foreign partners have done a remarkably good job of making friends and gaining influence.
These "friends" include Lord Mandelson, the Business Secretary, and Prince Andrew, the government's special trade representative, who has been to Libya three times in the past year, and was planning to go to the 40th anniversary celebrations of the Libyan revolution next month until the row broke about al-Megrahi's release.
Saif Gaddafi, the Colonel's second son, is the Libyan figurehead of his country's long-emerging diplomatic rehabilitation.
Shaven headed and always elegantly dressed, the 37-year-old bachelor took a degree in Vienna and studied further at the LSE. It is often said of him that he has a PhD, though there is no record of that.
"He is very presentable, very smooth and speaks good English," says a businessman who has had dealings with him.
"But there is the suspicion that it's something of a facade, that actually he doesn't always quite understand what is going on around him. As the Texans say, he's a bit 'all hat and no cattle'."
The businessman recalls one excruciatingly embarrassing evening when Saif threw an expensive party in London to display priceless ancient Libyan artefacts along with some highly dubious modern art.
The embarrassment was compounded as the guests noticed that the very worst paintings were the work of their host. But no one wants to upset a man like Saif.
"People are drawn to him like moths to a flame," the businessman says, because those moths want their share of Libya's billions in oil revenues.
Saif had a reputation as a bit of playboy, but nothing compared with the excesses of the scions of the ruling families of the Gulf.
However, he was provided with oil money to set up the Gaddafi International Charity and Development Foundation.
A foundation is a good way of attracting people into your orbit without putting them directly on the Libyan government's payroll.
The trustees include Giulio Andreotti, the former Italian prime minister, Sir Richard Roberts, a Nobel prize-winning molecular biologist, and Professor David Held of the LSE.
Shortly before al-Megrahi's release, Saif announced a $1.5 million donation to the LSE, his alma mater.
Saif is also close to Oleg Deripaska, the Russian aluminium baron, and Nat Rothschild, of the banking dynasty, who came to Saif's spectacular birthday party in Montenegro in June.
They in turn are friendly with Lord Mandelson, who denies any part in al-Megrahi's release.
The Business Secretary maintains, rather in the manner of an outraged Miliband, that any suggestion that a deal had been struck was more than just wrong but "offensive".
However, this year Mandelson stayed at the Rothschild villa and met Saif, fleetingly he says, though it has since emerged that he also met him at a reception in London in May.
Saif recently bought a £10 million eight-bedroom neo-Georgian home in Hampstead with suede lined cinema room, jacuzzi and sophisticated security system, providing him with a proper base from which to mount his social charm offensive.
The LIA has been an active buyer in the depressed London commercial property market, recently purchasing Portman House on Oxford Street and another substantial office building in the City.
And this will be just the beginning, the British Government hopes. With concerns about Russia's reliability as Europe's long term supplier of natural gas, Libya become a pivotal player.
For Daniel Kawczynski, a Polish-born Conservative MP and head of the all-party Libya group, the lack of explanation and accountability is troubling.
He is writing a biography of Colonel Gaddafi, and all British politicians have helped him with details about relations with Libya, bar Mr Blair.
He is struck by how elected politicians in London and Edinburgh express their dismay at any suggestion of a dubious deal having been struck, while it seems that unelected men are pulling the strings.
"We have no idea what Tony Blair has been doing on his trips to Libya," Kawczynski complains, adding that Mandelson and Prince Andrew, who may well be doing sterling work in the national interest, are unelected and unaccountable, while Blair will not even acknowledge his emails.
Worse, he says, is that the Government has gone completely quiet on the matter of WPC Fletcher.
There had been talk of her killer being sent back to Britain as part of the deal over al-Megrahi but those hopes have been dashed.
"That's the real scandal here," says Kawczynski, a point it is to be hoped will not be lost on the Libyans should they find new offices in St James's Square.
Reader views (4)
I strongly object to the statement about Italian colonisation as "arguably the most brutal and inept colonial power of the 20th century".
The writer is obviously not aware of what was going on in the "Belgian Congo".
History will show that the Belgians were the most cruel, inept,ruthless and racist colonisers in Africa, after taking over the Congo from their King Leopold II the Butcher of the Congo. The disaster that is today the Democratic Republic of Congo, is the result of the Belgian presence in that part of Africa.
By the way, I am not Italian but I have spent over 30 years in Africa, between Ethiopia and the Belgian Congo.
- Wladimir Panas, Halesowen, 28/08/2009 12:23
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Labour has sold the integrity of our country for a barrel of oil.Are there any further lows to which they will stoop?They have ruined the country economically and now they have sold our soul to a terrorist dictator who undoubtedly has British and American blood on his hands.Shame on you!!!
- Stuart, london uk, 28/08/2009 12:11
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"The country is so under-developed that almost everything manufactured has to be imported"
...like the UK then.
- Joebloggs, HighTown, 28/08/2009 12:01
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It's not true that where there's smoke there's always fire, but when you see men in suits walking around with lighted matches and smiling......!
- Paul Freeman, London, England, 28/08/2009 11:33
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