Libya plans to supply 1 million barrels of oil a month to Egypt on credit, Libya's deputy oil minister said Wednesday, a move that could offer relief from fuel shortages that have recently afflicted the embattled Egyptian economy.

Omar Shakmak told Dow Jones the agreement, which would meet about 5% of Egypt 's oil needs, was agreed on standard commercial terms, but that the length of the period of credit under which Libya would supply the oil had yet to be finalized and could extend beyond the six weeks commonly practiced in the industry.

The move comes as Egypt has been struggling since last year with fuel shortages that have led to long queues at fillings stations and electricity blackouts. It also follows a promise from Cairo to hand over a prominent supporter of former dictator Moammar Gadhafi to Tripoli , prompting allegations from Libyan activists that the North African nation is using its oil wealth to gain political leverage.

Continuing unrest in the Egypt since the ouster of former president Hosni Mubarak has weakened the economy, draining foreign-exchange reserves, reducing tourism revenue and forcing the government to maintain costly price subsidies. Egypt is trying to secure a $4.8 billion loan from the International Monetary Fund to resolve balance-of-payments problems and restore its image with international investors.

Fuel shortages, which government and industry officials have blamed on the worsening state of the country's public finances, black market trade, lower fuel production and an inefficient subsidy system, have added to the problem.

Abdulhamid el-Jadi, an independent Libyan governance activist who has criticized mismanagement of Libya 's oil wealth under the old and the new regimes, said there could be a political dimension to the deal.

Last year, Libya's general prosecutor requested that Egypt hand over 40 Libyans affiliated with the Gadhafi regime, but Cairo appeared reluctant to hand them over, a former Egyptian official who was involved in the talks told Dow Jones Newswires at the time. Libya had offered Egypt more than 1 million barrels a month on easy credit if the wanted officials were handed over, but Egypt declined the offer, the former official said.

The new agreement comes after Egypt arrested last week Ahmed Gaddaf al-Dam, a cousin of Mr. Gadhafi and one of the several high-profile figures who have been pursued by the Libyan authorities for their role in the 2011 war. Egypt has said Mr. Gaddaf al-Dam will be handed over to Libya .

"Criminals should be handed over regardless of trade," said Mr. el-Jadi, adding that tying oil deals to politics reminded him of the Gadhafi era, as he sold African nations cheap oil to strike alliances.

Mr. Shakmak insisted the terms offered to Egypt were driven solely by commercial considerations. "I am not involved in political discussions," he said, adding that the prices offered were in line with the market and offering credit was a routine practice in the oil industry.

He said some of the crude would be processed on behalf of Tripoli and returned to the country as gasoline for Libyan consumers, for a fee.
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