As Libya descends into a bloody and protracted civil war, both the White House and International Energy Agency are considering tapping strategic oil reserves.
Normally, no one would care what’s happening in a remote desert country that has been a pariah state for decades. But when you produce 1.6 million barrels a day of oil in a market in which global supply and demand was already balanced on a knife –edge, all of a sudden everybody cares.
European motorists are already feeling the pinch at the pumps as the flow of Libyan oil slows to a trickle. Estimates of how much of Libya’s production has been shut down grow all the time. The latest estimate from the International Energy Agency pegs the loss at a million barrels a day. On top of that, 10% of Libya’s natural gas production has been shut down as ENI closed its Greenstream pipeline to Sicily.
Moammar Gadhafi, Libya’s dictator for the past 42 years, does not have many options at this point. Gadhafi has only to look to neighboring Egypt to see what happened to fellow ex-strongman Hosni Mubarark, potentially facing state prosecution on corruption charges, to quickly realize he and his millions have nowhere to go.
The days of catching a waiting plane to Saudi Arabia and living off the avails of your foreign bank accounts seem to be over for fleeing Arab dictators. Saudi’s King Abdullah has his own problems without inciting more by providing safe havens to the likes of despised despots like Gadhafi or Mubarak.
Meanwhile, unrest continues to spread throughout the Middle East like wild fire, putting more of the region’s 29 million barrel a day oil production at risk. Hundreds of thousands of protestors were in the streets of Yemen last week, while protestors clashed violently with authorities in Oman and Bahrain.
Most disconcerting to oil markets has been repeated reports of Shiite protests in the oil-rich Eastern province of Saudi Arabia. Despite King Abdullah’s attempt to buy off the potential protesters with $36 billion of new spending in the kingdom, authorities are bracing themselves for two “days of rage” planned for March 11 and March 20 to protest double digit unemployment and the lack of political freedom in the country.
Is the Royal House of Saud next on the growing list of deposed Middle East despots?
Certainly, their political right to rule isn’t any more legitimate, and perhaps no more sustainable, than Mubarak’s or Gadhafi’s.
If so, the path to $200 a barrel oil is a lot shorter than you think. Not only is Saudi Arabia’s limited spare capacity of heavy sour crude incapable of replacing what has been lost from Libya, but the kingdom’s own nine million barrels a day output may also be soon at risk.