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Libya on the brink as protests sweep across Mena

Anti-government protests are sweeping across North Africa and the Middle East, bringing uncertainty for oil and gas investors and markets

THE OUSTERS of Tunisia's Zine al-Abidine Ben Ali and Egypt's Hosni Mubarak have awakened the Arab Street from its slumber. Protesters crowding the streets of cities across the region – in Yemen, Bahrain, Algeria, Morocco, even Libya – now know it is possible to voice their dissent. Iran's opposition movement is also back, emboldened.

Change is in the air, and the push is coming not from the top, but from the bottom. Its impetus too comes not from the concerns of rulers, but from those of the ruled – from tumbling living standards, soaring prices for domestic necessities and an increasingly well-educated and under-employed youth.

But change carries a price. For the West, that price is uncertainty. Observers are unsure what will happen when caretaker military governments in Tunisia and Egypt step aside – or even if they will relinquish power. No one knows, yet, whether the new governments that emerge will continue to welcome western investment; or if their hydrocarbon plays will remain open to foreigners.

And nor, yet, does anyone know when – or where – the unrest will stop. The revolt in Libya, North Africa's biggest oil producer, has spiralled into bloodshed. If Muammar Qadhafi's reign is to end, the death throes will be increasingly bloody and brutal. Saif Qadhafi, the despot's son, says the regime will fight "to the last bullet".

Wintershall has shut in its Libyan output – 100,000 barrels a day (b/d) – and evacuated its staff. Statoil has closed its office in the country. BP and Shell are evacuating staff. Eni, OMV and TPAO said operations had not yet been interrupted – but this was before the unrest had spread to oil-rich Fezzan province – Qadhafi's home turf.

Other producers have followed Wintershall's lead and shut in output. Libya's main port terminals are closed, with the last tanker to leave departing on 21 February. No one knows when production, or tanker loadings, will resume. The market is, understandably, spooked. Brent breached $100 a barrel during the anti-Mubarak protests in Cairo. But after Bahrain's army opened fired on protestors there and the Libyan airforce began bombing its own people, the price surged past $108/b. Natural gas supplies to Europe have also been affected. On 22 February, Eni closed the 8bn cubic metres a year Greenstream pipeline to Italy, which supplies about 10% of the country's demand. In a rambling television address, Qadhafi junior said a civil war could engulf the country. Forget about oil, he said, "it will all be burned".

Worries in Riyadh

Saudi Arabia – for now the region's most stable nation – is watching closely. A very frail King Abdullah, in Morocco (also the scene of unrest) recovering from surgery, is said to have cut short his convalescence to return home. The prospect of popular protests in Riyadh or Jeddah is, as yet, slim: oil wealth has bought the ruling Saud family some loyalty and a hefty arsenal of crowd-control weaponry. But the government is sufficiently worried to be moving an ailing octogenarian.

Riyadh's biggest concern is to maintain market stability (the trouble in Bahrain has hit shares on the Saudi stock market), safeguarding its reputation as a reliable oil supplier and the steady flow of export revenues. Indeed, Opec members are said to be "alarmed", particularly by events in member state Libya. But it won't yet act to increase output.

Events in Bahrain should be the most troubling for neighbouring Gulf countries. It does have some oil production from the Abu Sa'fa field its shares with Saudi Arabia, but exports are handled by Saudi Aramco and are unlikely to halt. As well as being a regional banking centre, Bahrain hosts the US Fifth Fleet, which leads the international naval force policing the Mideast Gulf and the Strait of Hormuz.

About 17m b/d of oil – more than 20% of the world's total oil supply – reaches markets through Hormuz, says the International Energy Agency (IEA). While the possibility is remote, if the strait were blocked only a fraction of that oil could be moved along alternative routes. Even the hint of a threat to Hormuz traffic may be enough to rattle an already jittery market. At press time, two Iranian warships had entered the Suez Canal to make passage to the Mediterranean.

Reports were also emerging from Manama that King Hamad had asked his eldest son, prince Salman, to begin a "national dialogue" with the leaders of Bahrain's protests.

But for those watching oil supply and for market sentiment, the key players caught in the maelstrom are Iran and Libya. In January, Iran pumped 3.66m b/d of oil, while Libya produced 1.58m b/d.

The Iranian regime initially celebrated Mubarak's fall – the ousted Egyptian dictator was a fierce critic of Islamic extremism of the kind imposed by Tehran's mullahs. Supreme leader Ayatollah Ali Khamenei called the uprisings in Egypt and Tunisia against Western-allied rulers an "Islamic awakening" akin to Iran's 1979 revolution.

But the government has grown quiet as protesters defied a ban on rallies and spilled onto Tehran's streets, ostensibly in a show of support for the Tunisian and Egyptian uprisings. Mindful of 2009's Green Movement protests, the authorities moved quickly, arresting protesters and placing opposition figures – including Green Movement leader Mirhossein Mousavi – under house arrest. Local reports say the regime has significantly boosted the numbers of security services personnel on the streets of Iran's main cities.

For Iran's leaders, the reckoning may still be some way off. "What the regime would find hardest to deal with would be a popular uprising linked to the dire economic conditions in which an estimated two-thirds of Iranians live," says Bill Farren-Price, chief executive of Petroleum Policy Intelligence, a consultancy. That would be difficult for the authorities to contain because, as in Egypt, it would cut across class divisions. "But the moment is not yet ripe for such an uprising."

A rapid unravelling of the state

Qadhafi's Libya, with 44.3bn barrels of proved oil reserves, is much closer to the precipice. Defying reports that he'd fled to Venezuela, Qadhafi made a brief television appearance to prove he was still in Libya. But it seems the Arab world's longest-ruling dictator has lost his people. In New York, his diplomats called for a no-fly zone to be imposed on the country to prevent Qadhafi using his airforce to strafe protestors. Some pilots have defected rather than fire on fellow Libyans. Shokri Ghanem, head of National Oil Company, is said to have left Libya. A rapid unravelling of the state is under way. At press time, protestors had claimed the streets across the country, including the second city, Benghazi.

Despite a media blackout within Libya, Human Rights Watch confirms troops loyal to Qadhafi have launched a brutal crackdown, firing on civilians with live ammunition and tear gas. The non-governmental organisation said it has confirmed 233 deaths over three days of protests to 20 February, although others put the number much higher. Most of the casualties are believed to have been in Benghazi.

Tripoli is vital. The support of the capital's residents – and the military – will be vital for a popular uprising to succeed. Both Al Jazeera and the BBC ran unconfirmed reports that some senior members of the military had joined demonstrators. Abdel Moneim al-Honi, Libya's permanent envoy to the Arab League, reportedly resigned in protest at the "oppression of protesters". The Libyan delegation at the UN called on the international community to intervene, calling the regime's actions "genocide". Libyan diplomatic staff have also reportedly switched allegiance – staff in London joined protesters calling on Qadhafi to step down.

So where does it stop?

Middle East observers say the source of the region's disquiet stems from years of deteriorating living standards, spiralling food and fuel costs, and widespread unemployment. There are no quick answers to the questions protestors are asking of their rulers. Oil wealth has done little to better the lives of citizens in these countries. But maintaining exports – and revenue – is essential if the region's dictatorships are to ride out the storm. The taps will stay on, even as discontent stalks the region's streets.

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