Browse
related articles
The resultant uncertainty has seen oil prices soar: three straight months of gains has lifted Brent Crude to more than $115 a barrel, from just over $70 in August last year. As a result major carriers including Emirates Airline have announced ticket price increases, while motorists are feeling the pain at the pumps as petrol prices rise.
"Before the unrest Libya was exporting between 1.4 and 1.6 million [barrels per day], a significant amount of oil," says Samuel Ciszuk, Senior Energy Analyst for Middle East and North Africa at IHS Global Insight.
"It's difficult to assess how much has been shut-in and how much is ongoing in Libya itself, however this violence is part of a wider contagion, a spread of protest around the Middle East and North Africa which has caused great uncertainty."
Long term effects on oil production capacity
The mass uprisings, which began in Tunisia and spread like wildfire to Egypt and beyond, have already touched Gulf shores. Protestors have died in both Bahrain and Oman, while the Saudi and Kuwaiti governments have announced packages of support for their people, in order to appease unhappy citizens and try to head off any dissent before it materialises on the streets.
"There have been petitions in Saudi Arabia, protests in Oman, and in Kuwait the PM has appeared on television to try and calm his people - it's too close to home for a lot of oil producers," notes Ciszuk. "Wherever you are looking there is some political uncertainty, and while it might not lead to shut-ins, it might lead to different policies, or strikes."
The region has, of course, faced similar upheavals in the past. The Iranian revolution of 1979 and the Iran-Iraq war eight years later, also tested Middle East energy supplies and prompted a spike in the price of oil. The concern today is that production capacity across the region has not expanded at the same pace as global demand - energy producers have less spare capacity to play with, at the same time as demand from emerging economic giants such as China and India grows unabated.
"In terms of a loss of production, this is the biggest shock to the system since the Iraqi invasion of Kuwait in 1990," says Kate Dourian, Middle East Editor for Platts. "It's the first time in a long time that you've had the production of a big oil-supplying country cut by such a significant amount, and even if Saudi makes up for the shortfall, it would leave everyone pumping at near-capacity."
As a result, Dorian warns that even if the situation in Libya were resolved quickly, while the oil price might ease slightly in the short-term, there is likely to be a higher premium built into the price in the future.
Oil prices to feature built-in risk factor
"The risk factor has multiplied across the whole region, North Africa and the Middle East, and I think that's going to be reflected in the price going forward," she says. "It's not so much fundamentals, because there is no shortage even with Libya exporting less, but it's the risk factor. Nobody knows what's going to be next - who would have thought that Egypt would push prices beyond $100, and now you've got the risk of a military confrontation [in Libya]; the risk factor has increased by multiples."
Looking forward, there is also the fear that Libya's production capabilities could be crippled long beyond the resolution of the current conflict.
Staff
