Nobody will be able to ignore the social movements of the North African countries and the Middle East. Whether it is Tunisia, Egypt or Libya, authoritarian regimes are giving way to democracies.
Okay, but what economic impacts?
The main malaise is located mainly in the oil countries. It is hard to deny the importance of the stability of oil production in these regions. So far, only Egypt and Tunisia have succeeded their popular revolution, these countries do not really have a big importance on the market of the barrel. The worry that has shaken the financial markets in the last few days comes from the potential contagion. Indeed, recent strong movements are mainly due to fears of political instability in Libya. Unlike other countries in North Africa, Libya is rich in oil and an integral part of OPEC. A decline in production in this area would impact heavily the price of crude as well as other correlated assets like the dollar …
According to experts, the market is still focused on Libya, and the protest movement does not seem to be weakening because according to Italian diplomacy, the eastern part of the country is no longer under the control of the authorities. Significantly, all ports are blocked, so no routing of crude is possible. Libya accounts for 2% of the world’s oil production, it looks a little like that, but stopping the export would involve a rapid surge in prices.
Nevertheless, other OPEC member countries will normally be able to offset Libyan crude oil production. However, the quality would be, according to some less good specialists, as a result some refining plants would not necessarily be able to process a crude too rich in sulfur. In these conditions the price of crude would not necessarily be too much upward but that of derivatives (diesel, gasoline, …) yes.
According to a JP Morgan analyst, Saudi Arabia promised that OPEC member countries would increase their production. Notwithstanding, in the absence of clear information on the variation of Libyan production, no decision can be taken. The direct consequence is the emergence of a phase of production delay between the current moment when Libya is reducing its production and the moment when other countries will try to compensate for it. Therefore a rise in the price of the barrel almost inevitable.
Even before the release of official figures, many oil companies have admitted to having temporarily halted their activities. This is the case of Total who decided to repatriate most of the staff, from Spanish Repsol or even from the Italian group ENI.
The Libyan crisis seems able, despite difficulties, to be regulated by overproduction of other exporting countries. The real concern is that these same countries are mostly located in the Middle East and are often under authoritarian regimes. If the crisis spreads to these and the productions are stopped in these regions then nothing could stop the price of a barrel …
On the other hand, in the face of such a geopolitical tumult, economic indicators are losing their seats and the safe haven is resurfacing. This is the case of the Swiss Franc, which is rising against other currencies. In a rising background of violence, the Swiss currency has good upside potential.