Heated denials notwithstanding, Scotland’s “compassionate release” of convicted Libyan Lockerbie bomber Abdelbaset Ali Mohmed al-Megrahi was part of a three-way oil deal between Britain, Libya and Scotland.

The two key players were Seif al-Islam Gaddafi, the ebullient Libyan leader’s second son and heir apparent, and Sir Mark Allen, former head of MI6’s counter-terrorism department.

Allen and Seif were also the two key players in 2003 when Moammar Gaddafi was persuaded to give up his career as an international terrorist, along with his nuclear weapons kit, secretly sold by Pakistan’s nuclear black marketer A.Q. Khan. The former British master spy joined BP when he retired from MI6. He is now a senior executive with the British oil giant.

Seif’s part of the 2003 mission wasn’t too arduous. He simply told his eccentric dad that unless he surrendered his nuclear ambitions, along with his terrorist apparatus, Libya would be next on President W. Bush’s hit list, and Gaddafi would suffer the same fate as Saddam Hussein. The United States had just invaded Iraq and deposed Saddam Hussein – later captured, tried and hanged – in a three-week campaign. Libya was virtually defenseless, and a similar operation against the man who never wanted a higher rank than colonel would probably be over in days rather than weeks. On Sept. 1, 1969, Lt. Gaddafi was 27 when he overthrew the Libyan monarchy of King Idris (who was on a yacht in the eastern Mediterranean).

What the major powers call terrorism, Gaddafi once explained to this reporter (who interviewed him six times over a 30-year period), is quite simply the weapon of the weak against the strong. And he used it to great effect from Berlin to the Philippines.

Con Coughlin, executive foreign editor of the London Daily Telegraph (and author of the recently published “Khomeini’s Ghost: The Iranian Revolution and the Rise of Militant Islam”), is the British journalist who pulled all the tangled strands of what led to the controversial release of Megrahi, whose Scottish doctors certified he was suffering from terminal prostate cancer and only had about three more months to live. He was flown back to Libya where he was greeted like the national hero he had become. Megrahi always maintained he was innocent during his trial before the Scottish Court in the Netherlands.

Coughlin says Britain’s interest was the same as BP’s – a bigger share of Libya’s untapped oil reserves, estimated at 44 billion barrels. The larger deal – in exchange for Megrahi’s release – was presumably discussed earlier this summer when Seif, says Coughlin, was a house guest at a villa owned by the Rothschild banking family on the Greek island of Corfu. Another house guest was Lord Peter Mandelson, Britain’s business secretary and a close ally of Prime Minister Gordon Brown.

Mandelson confirmed that during his stay at the villa, Seif raised the issue of Megrahi, but that he had nothing to do with his release. After Megrahi’s return to Libya, Seif al-Islam Gaddafi told Libyan television news that “in all commercial contracts for oil and gas with Britain, (Megrahi) was always on the negotiating table.”

Following the British-Libyan agreement on the surrender of Gaddafi’s nuclear weapons in 2003, there was already a tentative deal negotiated in 2004 by Prime Minister Tony Blair and Gaddafi to “solidify British-Libyan ties” by releasing Megrahi. The prime minister’s denials notwithstanding, an official letter leaked from the Foreign Office said, “There is no legal reason not to accede to Libya’s request to transfer Megrahi into its custody under the terms of an agreement reached between Mr. Blair and Gaddafi senior in 2004.”

Megrahi was a small cog in a much larger conspiracy. After a long interview with Gaddafi in 1993, this editor at large of The Washington Times asked Libya’s supreme leader to explain, off the record, his precise involvement in the bombing of Pan Am Flight 103, which killed 270 over Lockerbie, Scotland, on Dec. 21, 1988, and for which Libya paid $2.7 billion in reparations. He dismissed all the aides in his tent (located that evening in the desert about 100 kilometers south of Tripoli) and began in halting English without benefit of an interpreter, as was the case in the on-the-record part of the interview.

Gaddafi candidly admitted that Lockerbie was retaliation for the July 3, 1988, downing of an Iranian Airbus. Air Iran Flight 655, on a 28-minute daily hop from the Iranian port of Bandar Abbas in the Strait of Hormuz to the port city of Dubai in the United Arab Emirates on the other side of the Gulf, was shot down by a guided missile from the Aegis cruiser USS Vincennes. The Vincennes radar mistook it for an F-14 Tomcat fighter (which Iran still flies); 290 were killed, including 66 children. A year before, in 1987, the USS Stark was attacked by an Iraqi Mirage, killing 37 sailors. The Vincennes skipper, Capt. William Rogers, received the Legion of Merit, and the entire crew was awarded combat-action ribbons. The United States paid compensation of $61.8 million to the families of those killed on IR 655.

Gaddafi told me, “The most powerful navy in the world does not make such mistakes. Nobody in our part of the world believed it was an error.” And retaliation, he said, was clearly called for. Iranian intelligence subcontracted retaliation to one of the Syrian intelligence services (there are 14 of them), which, in turn, subcontracted part of the retaliatory action to Libyan intelligence (at that time run by Abdullah Senoussi, Gaddafi’s brother-in-law). “Did we know specifically what we were asked to do?” said Gaddafi. “We knew it would be comparable retaliation for the Iranian Airbus, but we were not told what the specific objective was,” Gaddafi added.

As he got up to take his leave, he said, “Please tell the CIA that I wish to cooperate with America. I am just as much threatened by Islamist extremists as you are.”

When we got back to Washington, we called Director of Central Intelligence Jim Woolsey to tell him what we had been told off the record. Woolsey asked me if I would mind being debriefed by the CIA. I agreed. And the rest is history.

Arnaud de Borchgrave, a member of the Atlantic Council, is an editor-at-large at UPI.  This essay was previously published in UPI‘s Emerging Threats analysis section.