Bush signed a bill into law in January that allows victims of state-sponsored terrorism to collect funds from foreign governments. With Congress already excluding Iraq from the law, oil giants from Chevron to Marathon want that favor extended to Libya as well, The New York Times said Tuesday.

Bush administration officials back the move and asked for congressional support.

"Commercial relationships provide important continuing incentives for them to cooperate with us on counter-terrorism," said Gordon Johndroe, a spokesman for the U.S. National Security Council.

Lobbyists for the oil industry say penalizing Libya will hurt the U.S. economy as Libya has the largest oil reserves in North Africa at a fraction of the cost of its Middle East counterparts.

Congress, however, expressed shock that Libya still refused to compensate the families of U.S. victims of terrorism backed by Libya's leader, Moammar Gadhafi, and balked at the exemption, Med Basin Newsline said.

Libya in 2003 denounced terrorism and nuclear weapons in an attempt to re-engage the Western world economically but was implicated in several high-profile terrorism cases in the 1980s, including the Pan Am 103 bombing over Lockerbie, Scotland, in 1988.