Ian Birrell: Warning: it is dangerous to get too close to Gaddafi

Amid the fading grandeur of Tripoli sits one of the world's best museums, offering a glimpse into Libya's astonishing heritage. Alongside ancient rock carvings and vivid Roman mosaics, there is a collection of artefacts paying tribute to the nation's ruler: a sky-blue VW Beetle in which the Great Leader stirred up protest against King Idris in 1969, plus paintings, statues and documents proclaiming his glory.

Three "secret" policemen were sitting on a sofa in a roped-off area when I visited, for all the world like some contemporary artistic installation. They were there to stop treacherous comments, but as I wandered past a bronze statue of Muammar Gaddafi on a horse, a local whispered sarcastically in my ear: "Another Caesar, just for us, eh?"

There is no doubt that Gaddafi is a deeply unpopular leader, a repressive autocrat rightly blamed by many Libyans for the stagnation of the country despite its massive oil wealth. But as we debate whether it was right to hand back the Lockerbie bomber, a more fundamental question is ignored: the wisdom of cosying up too close to this desert despot.

There is a story Libyans tell of a Dubai prince who visited soon after Gaddafi seized power. Looking around at the dazzling wealth, he vowed that one day his nation would be as rich and successful. Now Libyans lives in the shadow of those skyscraper city-states, where, for all their faults, the rulers at least ensure their people have superb public services.

In Libya, by contrast, the infrastructure is crumbling, poverty is endemic, power cuts a way of life. Educational standards are poor, wages low and unemployment, especially among the young, is high. All this in a country where, although the population has grown fast, there are still only 6 million people sitting on huge reserves of some of the world's best crude oil.

Gaddafi is like a pools winner, who has spent, spent, spent a fortune – some say $250bn, others $1trillion – of oil money, much of it blown on vainglorious ventures. It is easy to dismiss him as a clown, with the batty badges, the crazy costumes, the female bodyguards. But he is a brilliant political operator, as one would expect of a man who seized power in his twenties and has clung on to it for four decades. He devised a bewildering form of government that claims to be a unique form of direct democracy but, in reality, places him at the heart of everything, supported by his security machine – the one part of state apparatus that works. The military has been purged, Islamic fundamentalists crushed, opponents executed and rivals played off against each other.

Now, of course, he has come in from the cold, renouncing his bad old ways as a global revolutionary and abandoning his quest to build weapons of mass destruction to become the poster boy for the war on terror. This suits him, because he needs Western support and money to help repair his country and its oil industry. And it suits us, because we need friends in the region and, of course, access to those vast oil reserves. All of which makes perfect sense for both sides.

Except for two things. Firstly, as we have seen in recent days, Gaddafi does not play by the normal rules of diplomacy. To say he is quixotic does a disservice to Cervantes. He has been a disruptive influence on the African Union since, rejected by the Arab world, he decided to become leader of Africa, and he is a dangerous figurehead to ally ourselves with in the region.

More fundamentally, Gaddafi is 67 years old. What happens when he is not there to pull all the strings? Libyans, infuriated by their impoverishment, know what life is like outside their borders and are fortified by the expectation of change when he dies. But the old guard will want to cling on to their corrupt ways. A younger generation – the last one educated abroad – want reform. One of Gaddafi's sons tours the world as the voice of reconciliation while another is national security adviser. And the military and security forces lurk in the shadows. It is a combustible legacy.

Western diplomats make soothing noises, pointing to disunity of opposition forces and arguing that whoever wins power has too much to lose by abandoning rapprochement. But Russia is making overtures, China waits in the wings. There is muttering among Libyans of typical Western hypocrisy in doing deals with the dictator, tribal divisions remain and Arab nationalism remains a powerful force.

An army of workers is clearing rubbish, resurfacing roads and planting palm trees along Tripoli's waterfront in preparation to celebrate Gaddafi's 40 years in power. Dozens of heads of state will pay homage, many with an eye on that oil wealth. Britain has led the way in welcoming Gaddafi back into the international fold, anticipating huge dividends. But we should be wary of hugging him too close. As the furore over the release of Abdelbaset Ali al-Megrahi shows, the only certainty when dealing with Gaddafi is that nothing is certain.

i.birrell@independent.co.uk