Libyan oil in jeopardy

Tuesday, February 22, 2011 - 10:58am

The latest news out of Libya is perhaps good for democracy, but bad for the price of oil.

It is one of those wonderful ironies that just a week and a half ago, Muammar Khadafy was calling on Palestinians to begin protests against the government of Israel.

Well, be careful what you wish for…

The protests in Libya are similar to the ones that toppled the regime of Hosni Mubarak in Egypt except for one important difference.

Muammar Khadafy is responding with bullets. The violence is spreading from the second largest city in the country, Benghazi, to the capital of Tripoli, and the world waits with baited breath to see if rumors of Khadafy’s imminent departure might be true, the effects on oil prices are definite and immediate.

The price of crude in New York jumped 7% over the weekend, above $93 a barrel. And in London, the price of Brent Crude soared to over $104.

Libya has the largest oil deposits on the African continent, and both BP and Exxon have extensive dealings with Khadaffy. They are the primary supplier of oil to Italy. But, the latest reports from the BBC are that Libyan Air force planes are bombing Libyan Army bases. The State Department has stepped up travel warnings and Khadafy’s son has threatened that if the regime goes down, the oil fields will be burned…just like another failing strongman in Iraq.

The Kuwaiti fires burned for 10 months and cost $1.5 billion to put out.

The effect of that kind of energy and environmental vandalism of the 13th largest oil deposit in the world, and continued unrest elsewhere, could cause devastating price spikes.

The BBC also reported today, a rumor that Khadafy has already fled the country. Though that seems unlikely now, this tide may be unstoppable, and the effects on world oil prices, irreversible.

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