Government documents obtained by CBC News reveal the Canadian diplomatic efforts to placate Moammar Gadhafi after he became incensed that he would be lectured by officials during his planned stopover in Newfoundland in 2009.

Gadhafi was set to stop in St. John's to refuel his personal jet on his way back to Libya after addressing the UN General Assembly in New York. But he cancelled the trip after being told that then-Foreign Affairs Minister Lawrence Cannon planned to meet with him and express Canada's displeasure over the hero's welcome Libya gave to the Libyan national convicted of the 1988 Lockerbie bombing.

Three Canadians were among the 270 people killed when the plane exploded.

Gadhafi was so incensed by Canada's planned lecture that he threatened to seize billions in assets of Canadian companies, including Petro-Canada, if he didn't get an apology.

"If there is no statement by the Canadian government by midnight Libyan time, Petro-Canada's operations will be shut tomorrow at 7 a.m." relayed a Canadian diplomatic official, according to government documents obtained by CBC News through access to information.

"The Libyans have threatened to nationalize Petro-Canada assets," according to the documents, many previously marked secret.

Moammar Gadhafi threatened to seize billions in assets from Canadian companies, including Petro-Canada, if he didn't get an apology. (Associated Press)

A flurry of emails that night led to Canada softening its wording about the bomber. Ghadafi didn't seize Petro-Canada, but he did cut its allowed oil production in half.

In addition to the threats against Canadian businesses, Canadians working in Libya were soon refused visas, triggering an avalanche of panicked phone calls.

One bureaucrat wrote that around "100 phone calls from concerned Canadians in the past 10 days" had been received.

Instead of delivering a dressing down to the Libyan leader, Ottawa quietly sent Cannon to Tripoli to smooth things over with his government.

Cannon was advised to tell Libya that Canada regretted "any misunderstanding" and had supported its bid to join the World Trade Organization.

He was also told to remind Libya that Canada had supported Gadhafi's attempt to get a seat on the International Atomic Energy Agency in exchange for Libya's support of Canada's UN Security Council bid.

Gordon Smith, who was deputy Foreign Affairs minister under the Chretien government and now heads the centre for global studies in Victoria, said Canada had little choice.

"Dealing with dictators is always a difficult dance. For them, every move is intensely personal and their reactions can have grave consequences," Smith said.

Libya ultimately failed in its bids to get a seat on either world body.

The documents obtained by CBC also showed that before this diplomatic flap, Canada had turned to Libya for help in 2008. Canadians Robert Fowler and Louis Guay had been kidnapped in Niger in December of that year, and Canada wanted Gadhafi to lean on his contacts in the region to try and get information about who was holding the men hostage and where.