The Realist Prism: Libya and the Global Oil Shock

The Realist Prism: Libya and the Global Oil Shock

Will the collapse of Moammar Gadhafi's regime be the salvation of Russia, Saudi Arabia and Venezuela? Even without a forcible overthrow of the "Brother Leader" and the uncertainty of a subsequent interregnum, a protracted Libyan civil war that damages the country's energy infrastructure could drive energy prices back to 2008 levels. Joshua Schenyer, surveying the landscape, concluded grimly, "Regardless of what comes next in Libya's lethal political standoff, the OPEC country's oil sector is nearly certain to suffer, bringing long-lasting supply disruptions or even permanent damage. None of several potential outcomes is benign for Libya's oil industry -- the lifeblood of its economy -- or for oil prices."

Already, the chaos has slashed up to 400,000 barrels per day from Libya's normal daily output of 1.6 million barrels. Meanwhile, natural gas shipped to Italy through the "Greenstream" pipeline was down by 73 percent, to 6.8 million cubic meters from the normal 25.5 million cubic meters that usually makes its way northward across the Mediterranean.

The good news is that disruption in energy supplies coming from Libya can be compensated for -- but at a cost. Already this week, oil prices have surged above the $100 per barrel threshold. If we add to the mix the possibility of serious unrest in Algeria as it lifts its longstanding state of emergency, then the chances that prices will crest beyond the record $142 per barrel we saw three years ago is high. But even if Algeria should have the most gentle of transitions, the most skeptical analysts still agree that pronounced turmoil in Libya would keep prices above the $100 per barrel mark.

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