Mideast unrest that began in January has spurred oil price volatility, with prices rising to over $100 for the first time since 2008. Libya's oil production has nearly ground to a halt (AP) as rebels and the regime of Muammar al-Qaddafi battle for the country and concerns mount about the stability of other oil-producing nations.
Whether Saudi Arabia will be the next to fall is "the billion-dollar question" says Der Spiegel. The world's largest exporter of oil is bracing for the planned March 11 "day of rage" (al-Jazeera), which would be the latest in a series of protests to rock the Middle East. The very idea of unrest is making waves in already jittery oil markets. Some traders are betting Saudi unrest will drive oil prices up to $200 a barrel (Bloomberg) within the year. "Any sign that the Saudis are losing their grip risks an oil shock large enough to derail the global recovery," writes Ambrose Evans-Pritchard, international business editor of the Daily Telegraph.
Rising oil prices have spurred worries of increasing inflation, and potentially compound the pain felt by the world's poorest (Guardian), who are already struggling with skyrocketing food prices. Though some analysts, like CFR's Michael Spence, believe the U.S. economy could weather higher fuel prices, many countries cannot. Pakistan and Vietnam have already cut fuel subsidies (Reuters) to address budget-draining prices, and other Asian countries may follow suit. Meanwhile, India--currently battling one of Asia's highest inflation rates--and Indonesia have slowed fuel-subsidy reforms started after the 2008 oil price crisis because "there isn't enough political capital to push forward harsh reforms," one economist told Reuters.
Several OPEC nations promised to increase oil production to help quell market panic and fears of the supply crunch (FT), and so far the move has eased oil prices a bit. But there are new questions about how much spare production capacity OPEC has to employ. As the Wall Street Journal notes, "turmoil in the Middle East and the concurrent rise in oil prices are reviving the debate over how much oil the world can produce."
Republicans in the U.S. Congress have used the market upheaval to criticize President Barack Obama's energy policy, particularly new regulations on offshore drilling put in place after last year's Gulf oil spill, and have called for new U.S. oil exploration. The Obama administration is considering releasing oil (HoustonChronicle) from the U.S. Strategic Petroleum Reserve, but it is unclear how much price effect it will have. Some analysts say a release isn't needed because there isn't a supply crunch, but a former OPEC official says Obama should tap into the reserve "to prove that the U.S. can also be part of this world alliance that is protecting the reactivation of the world economy" (NationalJournal).
CFR's Michael Levi says "the world must prepare for further oil price volatility."
"Whatever the outcome of the protests, uprisings, and rebellions now sweeping the Middle East, one thing is guaranteed: the world of oil will be permanently transformed," says Michael Klare in the Asia Times.
In Foreign Affairs, Edward Morse writes, "2011 may turn out to be as momentous a year for global oil markets as 1971, the year when the nature of the region's petro-states first took shape."
The Economist notes, "The price of oil has had an unnerving ability to blow up the world economy, and the Middle East has often provided the spark."
CNN commentator Patrick Doherty, meanwhile, says the U.S. middle class is "extraordinarily exposed" to price increases thanks to high unemployment and a transportation system 95 percent fueled by oil.
This CFR Interactive looks at the history of U.S. oil dependence and foreign policy.
This CFR Backgrounder discusses the role of non-industry speculation in oil markets.