Over the last few days the enthusiasm for coming democratic changes in Arab East have given place to concerns over the future of European economy and fears of the second wave of the global economic crisis. The recent events in Libya have caused oil prices hike.On February 24, April Brent oil contracts traded $119.79 per barrel at London Commodity Exchange, which is the highest price in the last 2.5 years. Oil price for West Texas Intermediate (WTI) at New York Commodity Exchange soared to $98.88 per barrel.
The atmosphere on the markets became nervous after Germany’s Wintershall and RWE, Italy’s Eni,Spain’s Repsol-YPF and halted their oil production in Libya. Now all these companies are completing the evacuation of their employees from the country swept by unrest and the production and export of Libyan oil has been paralyzed. According to Claudia Kemfert, head of the Department of Energy, Transportation and Environment at the German Institute for Economic Research in Berlin (DIW Berlin), the nervousness is quite high on oil markets and every supplier is important in the current situation.
Libyaaccounts for 2% of the global oil production. This is a relatively small share, so objectively there are no reasons for concerns especially after Saudi Arabia, which accounts for 12% of the global oil production, said it is ready to cover oil deficit. Having the largest oil reserves in the world Saudi Arabia can easily react on the changing market situation.
It seems not so frightening and the EU won’t see disruptions in oil supply. According to a statement by the European Commission, the volume of the EU’s oil storage is twice as much as the annual volumes of Libyan oil supplies. These reserves will be enough for to meet oil demands of all 27 EU members during 120 days. But the reserve will likely stay untouched because oil exports from Saudi Arabia, United Arab Emirates and Qatar can fill the gap.
Nevertheless, Saudi Arabia’s statements are not enough to calm down the markets. They talk that the revolts may spread to Saudi Arabia too. Also the situation in Iran, which produces oil twice as much as Libya, remains tense and it is difficult to forecast the development of events in Algeria.
According the New York Times, oil price surge has been caused by the fears that it is just the beginning of a long period of instability on the Middle East. Adding fuel to this pessimistic forecast experts with Nomura Holdings Inc say that the oil price will reach $220 if the revolts lead to the halt of oil exports from Libya and Algeria at the same time. If Algeria and Libya stop oil production it will cut the global oil production by 2.1. million barrels a day, Bloomberg says.
However, the countries of the Organization of Petroleum Exporting Countries (OPEC)are capable of building up oil production by 45 million barrels a day and to fill the gap. OPEC representatives are calming down the EU officials saying that there is no reason for panic. At the same time OPEC countries are not increasing their oil production. According to a statement made at an unofficial meeting of OPEC members in Riyadhon February 22, it would only lead to further agitation on the market. "OPEC producers' decisions will play a key role in price dynamics," the IMF said in a report published on February 24.
It is not quite clear yet for the economists whether the oil price leap on February 23 is a temporary thing or it is the beginning of a long-term trend. According to the experts interviewed by The Wall Street Journal, the prices will climb up to $127 per barrel before it the real slowdown of the economic growth starts.
The oil price of $ 127 (which is not a long way to go, actually) is the price Germany’s economy can cope with. But many other European countries, first of the southern countries of the euro-zone won’t be able to deal with it. They all have serious foreign debts. Besides that they either show slow economic growth like Italy or a decline in economic growth like Greece and Spain. For these countries even a small hike in prices on the capital market would mean inability to implement their financial obligations. As a result Germany and France will have to provide assistance to these chronic outsiders of the EU.
The EU authorities plan to freeze the accounts of Gaddafi and his family. But by doing this it is possible to attack the Libyan leader but not to stop the growth of oil and gas prices. Causing the social outbreak within the country the Libyan regime unintentionally put Europe under a similar threat.
But why should Gaddafi alone be responsible for all this? Experts start talking about a possible division of Libya into three parts. Benghazi, where the Libyan royal dynasty overthrown in 1969 came from, may become the capital of the first state; Benghazi always looked critically at Tripoli. The second state will be formed around Tripoli, which is economically the most developed part of Libya. Tripoli and Benghazi will have to share income for oil because part of the oil will come under control of Benghazi. The third “state”, the southern part of the country – the desert with Bedouins, Berbers and other wandering nations. They can sort things out between each other but they will unlikely move to the establishment of the state. These tribes belong to the époque, which does not need state.
The break-up of Libya, if it comes true, will create “new opportunities” for the West. The Western countries can seize something, still formally owned by the Libyan state and to reduce costs on supplies of oil from Libya, which will become “a former state”. Similar thing happened earlier in Iraq.When the country was occupied by Americans and Brits they first of all took control over oil pipelines and oil-loading ports. It is not excluded that someone has already foreseen such opportunities even before the outbreak of unrest in Libya. So let us not to accuse the dictator Gaddafi, who was claimed to have brought the country to the social outbreak, of all the sins.