News / Middle East

Oil Prices Surge on Libya Upheaval

A trader watches his screen on the floor of the New York Stock Exchange. U.S. stocks dropped for a second straight session as Libya's violence sent oil prices up briefly to $100 a barrel and tech shares sank, February 23, 2011.
A trader watches his screen on the floor of the New York Stock Exchange. U.S. stocks dropped for a second straight session as Libya's violence sent oil prices up briefly to $100 a barrel and tech shares sank, February 23, 2011.

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Global stocks dipped again Wednesday as oil prices soared to new highs on fears that the revolt in Libya could spread.  International oil companies, including BP and Shell, have already cut production or evacuated staff. But analysts say whether Libya's current regime survives or not, the impact of the unrest on the global economy could be far-reaching.

Grainy YouTube video shows no letup in the popular but deadly uprising against Libyan leader Moammar Gadhafi. Critics vow to continue their protests despite Gadhafi's threat to crush the revolt.

With neither side willing to back down, international traders are increasingly on edge - driving up oil prices to their highest level in more than two years. Energy analyst Fadel Gheit says fear of the unknown is fueling the dramatic price hikes.

"What the market is anticipating is the next step.  If the situation does not come to a halt in Libya I think the market will be very jittery and oil prices will continue to remain inflated," Gheit said.

Although there is currently no shortage to justify higher prices, the immediate threat is from instability in markets that depend on Libyan oil.

Ian Lesser was an adviser on North Africa in the Clinton administration. "We don't import that much oil from Libya, but we have a stake in the effect of a loss of Libyan supply on the stability of global energy markets," he said. "And some of our European allies import a lot of energy from Libya."

Energy trader Will Hedden says that instability, coupled with rising oil prices, is a dangerous mix in a fragile global economy. "And certainly if the price continues to rise and we see further problems, this isn't going to have a good effect at all and it will have the potential to derail the global recovery," Hedden stated.

As the violence escalates, at least four international oil companies operating in Libya have already announced production cutbacks.  

But Hedden says there is no reason to panic just yet.

The International Energy Agency says the 12 nation cartel of petroleum exporting countries, which includes Libya, is prepared to increase production if needed.

"We know that Saudi Arabia has a large supply and the IAEA will mandate the members responsible to help increase supply," Hedden said.

Libya provides less than two percent of the world's oil supply or about 1.6 million barrels per day. But fears that the turmoil could spread to major oil producing countries has sent oil prices skyrocketing. Some investment groups warn oil prices could reach historic highs near $147 a barrel if the unrest continues.

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