1. Libya and Rest of the Middle
East Crisis May Push Oil
Beyond Record Levels
Sample article
2011
2. Libya and Rest of the Middle East Crisis May Push Oil Beyond Record Levels
The pro-democracy revolution in Egypt had only a limited impact on the markets, given its
tiny role as an oil exporter. From the transport point of view as well, Suez Canal has allowed
the traffic (>5% of total traffic) so far. However, the case of Libya is different – it the first
time since the revolt broke out in Tunisia that the impact of sagging oil supply is being felt.
Overshooting Oil
The crude prices in the international market have already started to feel the heat, almost
repeating their 2008 recession rally. On February 25, 2011, U.S. oil prices touched $103 per
barrel, before plunging to $93 the following day. The London Brent for April delivery shot up
to $113.91 per barrel on Thursday. The wider concerns relate to the cumulative effects of the
Jasmine Revolution on the fuel production and supplies. This is particularly true for the
already ailing world economy, where most of the nations are still struggling with the
aftermath of the sub-prime crisis. Any fresh spike in the fuel prices is likely to give a severe
blow to the economic recovery. Meanwhile, the market-watcher haves come up with some
rather grim forecasts, expecting a further rise to $115-$120 per barrel in the short-term. If
the crisis escalates further, the market may witness historical highs of around $220 per
barrel!
The Problem Areas
The reason why the Jasmine Revolution is so powerful is that it bolsters the common demand
for democracy in a number of countries, including some of the OPEC members. Tunisia was
the first affected nation and the internet helped the stir spread, in a matter of days, to other
dictatorial and communist regimes - China, Gabon, Libya, Bahrain, Algeria, Egypt, Morocco,
Iran and others. The Governments are working hard at controlling the responsible websites
and forums to prevent the protestors from coordinating the movement any further. In Libya,
Gaddafi has gone a step ahead, deploying the military and resorting to state-sponsored
violence. The Government quarters have threatened to destroy some key oil wells and other
supply lines, a move that may cause irreversible damage to the Libyan economy.
The Positive Side
The brutal reaction from the Gaddafi-led government has invited attention from the
international community. The U.N. is planning sanctions against the country, while UK and
France may impose arms embargo. NATO has also taken cognizance in the matter and most of
the nations are against Gaddafi. If the international pressure forces the Dictator to quit,
peace may eventually be restored and Libyan oil exports may be resumed. The major
economies have already stocked excess fuel to meet contingencies and the other OPEC
nations are planning to ramp up their domestic production, in case the situation worsens.
Further, Libya is a big crude exporter, yet it constitutes less than 1% of the global volumes.
The transportation through the Suez Canal is also not under any immediate threat.
Though such emergency measures may check the soaring oil for the time being, the volatility
will continue unless the revolt reaches its destination, whatever it may be!
Article | Eurion Constellation | All Rights Reserved Page 2