Arab unrest will shake oil prices, global finance
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[By Liu Rui/Global Times] |
Recently the political unrest sweeping through the Arab world has caused tremendous damage to the domestic economy and living conditions of those countries within its range. Its severe consequences will be exposed further in the future, and the international staple commodities and capital market are in turmoil.
The economy in these regions is already weak, characterized by over-dependence on the oil industry, which distorts local economies.
Oil wealth affects exchange rates and siphons attention and investment away from manufacturing. This pattern has been most visible in the Middle East, but even more developed countries such as the UK and Russia have encountered similar problems.
Political unrest has worsened the economic and political environment in the Middle East and North Africa. Resource exploitation industries, including oil and natural gas, have either entirely stopped or sharply reduced the production. Tourists are shunning the regions. National financial revenue is declining sharply while expenditure is increasing. Infrastructure construction is paralyzed completely. Young professional workers and foreign labor force are flowing out of the regions en masse.
Meanwhile, the political unrest in Arab countries, especially the Libyan war, has disturbed seriously the market for international staple commodities in the short term, stimulated capital flight in Arab countries and will cause many uncertainties in the commodity markets and global political situation for a long time to come.
If Western countries hadn't taken part in the Libya civil war, the prices of staple commodities around the world, especially the oil price, may be lower. The oil price rose suddenly in February due to the upheaval in Arab countries, especially the civil war in Libya.
With no foreign intervention, the civil war might have ended early and the high oil price could have been lowered.
However, the military intervention has forced oil prices higher. If the bombing seriously damages oil fields and transportation facilities in Libya, the lost production cannot be completely made up, even if Saudi Arabia and other countries increase their oil production.
Libya produced 1.6 million barrels of crude daily last year, 2 percent of global production. It is the 15th largest exporter in the world. Since the revolt began in February, Libya has been producing less than 400,000 barrels everyday. The European market is most affected, as much of the oil refining equipment in Europe can only use the light crude from Libya.
The leader of the rebels in Libya admitted that there were less than 1,000 professional soldiers in the army. The rebels lack of equipment, training, strict discipline and clear leadership. Even with the help of air strikes, they cannot defeat Gaddafi's forces anytime soon.
Even if they take control of the regime in the future, they cannot easily manage the territory and economy of the whole nation.
Oil production and export in Libya will not be steady for some time to come, which will continue to disturb the international petroleum market.
Meanwhile, ever since the oil price rose sharply in the 1970s, oil dollars from the Arab countries have been an important power in the international financial market.
The political upheaval and continuous wars in the region will certainly force huge amounts of Arab capital to be transferred from its own countries to safe havens, which may affect international financial market in many aspects, such as the exchange rate and assets price in international financial centers.
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