Oil hits $92 on Libyan massacre, is this the next black swan?

WTI crude oil past $92 a barrel this morning in electronic trading on news that Libya is in a state of civil war with hundreds already dead. At immediate threat are the 1.6 million barrels per day pumped by this North African dictatorship but there is no end to the widening protests across the Arab World and beyond.

Oil analysts are far more concerned about the possibility of serious political unrest in Iran or Saudi Arabia. These countries remain mainly off-limits to journalists and so reports of unrest are impossible to confirm.

Black swan?

Is this the black swan that will trigger a second global financial crisis? The probability is certainly higher than financial markets currently discount. Oil surged to $147 a barrel in July 2008 just a couple of months before the worst global financial crisis since the 1930s.

With financial markets rebounding faster than at anytime since the mid-30s the fear is that another 1937-style crash is on the cards (click here). The bulls may be ignoring the most obvious sword of damoceles hovering over their heads, an oily black swan.

Bahrain has been another focus of discontent in recent days with a hard line crackdown now giving way to a far more concilatory approach with talks with opposition leaders in progress after strong intervention from the US.

Libya seems a very different ballgame, with the unpredictable 42-year ruler Muammar Qaddafi and his son in control, and employing African mercenaries to shoot citizens. That said BBC reports suggested the military was turning against them as well as key tribal leaders making their days numbered.

UAE secure

Nobody knows what will happen next but it seems a pandora’s box of unrest has been released across the region. It’s all happened very fast but these are the old fault lines of the region opening up. That is why countries without any tradition of popular unrest, like the UAE, still feel secure.

There is also a total absence of any coherent organization across borders, or even within them. The Shia in Bahrain are far from united, for example. So it looks more like a question of whether the authorities in the respective countries can handle protests by disparate and isolated rabbles rather than political parties.

Nonetheless, the potential for serious disruptions to global oil supplies from the region is very real, but it does not look as though global markets will believe it until they actually see it this time. ArabianMoney newsletter readers will be ready (click here to sign-up).