ZURICH, Switzerland — Switzerland’s neutrality has always ensured the Alpine nation a place in world diplomacy. But, increasingly, it’s the Swiss who are in need of a mediator in disputes with other nations instead of being called upon as one.

Over the past 20 months Switzerland has been embroiled in a feud with Libya that involves trade embargoes, visa and travel restrictions, and the jailing of a Swiss business man in Tripoli.

The dispute with Libya started in the summer of 2008 over the arrest of Moammar Gadhafi’s son Hannibal on charges, later dropped, of allegedly assaulting two domestic employees at a local hotel in Geneva.

While Gadhafi junior has repeatedly run into trouble with the law in various European cities, he was always able to invoke diplomatic immunity and avoid any repercussions (except for in France, where he received a four-month suspended prison sentence for allegedly beating up a female companion). But in Geneva, Hannibal and his wife were imprisoned for two nights.

Libya retaliated by cutting oil supplies, withdrawing billions of dollars from Swiss bank accounts and canceling most commercial flights between the two countries. Last year, Gadhafi senior urged the United Nations to abolish Switzerland and divide it up between Germany, France and Italy.

Nearly two years later the Swiss are downplaying the effect of the Libyan boycott. In 2008, Switzerland exported $263 million to Libya, mainly in machinery. This was only 0.13 percent of total Swiss exports. Switzerland’s main import from Libya is oil. In 2008 Switzerland's imports were worth some $3 billion, a third of the country’s crude oil imports. In 2009 they had fallen to $0.7 billion.

"We had enough time to import oil from other states,” said Philippe Cordonier of the Swiss Petroleum Association, "Libya has played its game and it didn’t have an impact.”

Business also continues at Libyan company Tamoil, which owns and runs an oil refinery near Lake Geneva and some 300 filling stations in Switzerland.

But the main casualty in this dispute is Max Goeldi, a manager with Swedish-Swiss Firm ABB in Tripoli. Goeldi has been prevented from leaving Libya since July 2008 over violating immigration rules. In February, he started a four-month prison sentence.

Amnesty International is campaigning for his release and said he is a victim of a diplomatic dispute.

Relations have not always been this sour. Switzerland continued dealing with Libya during the 1980s and 1990s, while the U.N. and the U.S. imposed sanctions.

The Swiss have repeatedly tried to defuse tensions with Libya and win Goeldi’s release. But somehow the diplomatic touch was missing.

Last August, then-President Hans-Rudolf Merz stunned Switzerland when he traveled to Libya and issued an apology for the “unjustified” arrest of Hannibal Gadhafi. He did not succeed in freeing Goeldi but Merz remains under pressure to quit politics ever since.

Then Switzerland drew up a blacklist of 188 Libyans, including the Gadhafi family, banning them from entering the country. Because Switzerland is in the Schengen zone of the European Union, the Libyans were in effect prevented from entering any of the 25 countries in Europe.

Libya retaliated by barring entry to all EU citizens and calling for a "jihad” against Switzerland.

EU countries didn’t appreciate being drawn into a dispute between two non-member countries. Spain, Italy and Germany mediated between the two parties. Leading the way Italy, which has become increasingly dependent on oil imports from Libya, since EU sanctions were lifted in 2004.

As Libya and the EU patched up the visa dispute at the end of March, Libya hailed it as a victory over Switzerland while the Swiss could only wonder if the EU had just placed its relations with Libya above its relations with Switzerland.

Overall the Swiss seem irritated about a lack of solidarity from the European Union, especially that neighboring countries like Italy didn't rise to its side.

Throughout this crisis it has become very clear that, as a non-member of the EU, Switzerland just doesn't have enough of a say when it comes to decision-making in Brussels — or as the Geneva based newspaper Le Temps put it: "In this crisis Switzerland loses more than honor. The country has slowly taken stock of its powerlessness."

And this will certainly give ammunition to both sides in the ongoing debate about whether Switzerland should join the EU.

Karoline Durr is a writer in New York and Berlin. She has covered European business and economics for CNN, CNN International and Bloomberg.

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