What began in Tunisia and Egypt with long-term rulers ousted of office by the public has caused a hunger for revolution effect throughout the MENA region. In Morocco civilians marched in hopes of transforming the monarchy into a democracy, in Yemen, Ali Abdullah Saleh promised to undertake political and constitutional reforms, meanwhile in Bahrain peaceful protesters demand ouster of government. However, in Libya as violence escalates and becomes more widespread the aftershocks of the civil unrest are being felt across global financial markets.
Libya, the 12th largest exporter of oil pumps 1.8 million barrels of oil a day. That’s about 1.8 percent of the world supply at risk. As a short-term shock, with the ongoing violent uprising threatening to disrupt oil exports, oil prices have jumped to the highest levels in more than two years at $96.08 a barrel. However, the long-term effect of the ongoing violence might be detrimental to the global economic recovery as rising oil prices might accelerate inflation.
How important is Libya to the world economy? Well, according to BP Plc’s Statistical Review of World Energy, Libya currently holds the largest proven oil reserves in Africa, roughly 44.3 billion barrels followed by Nigeria and Algeria. Oil and Natural gas make up 50% of the vountry’s GDP and almost 95% of its exports. What is most interesting is Libya’s strong economic relationship to the highly indebted PIIGSter, Italy. Eighty percent of its crude exports are sold to EU countries such as France, Germany and particularly Italy.
Flushed with petrodollars, Libya’s money was invested in Italy while Italian companies have enjoyed ongoing contracts for energy and infrastructure projects in Libya. Some of Libya’s holdings include a stake in Eni, Unicredit, Fiat, Juventus, and many other companies. While Italy is already in its own debt troubles, the situation in Libya only makes it worse.
Going back to the global economy, an important question remains and it is that will Saudi Arabia come to the rescue? Looking at history, Saudis have come to the rescue after the Gulf War when they boosted oil output by 2 million barrels a day, but will they come again?