London: Oil prices rose by more than 1% on Monday as a United Nations mandated wave of airstrikes on Libya and proliferating unrest in the Middle East fanned concerns about oil supply from the region.
Brent crude for May was up $1.44 to $115.37 a barrel by 3:10pm, while US crude for April gained $1.70 to $102.77 a barrel.
“With the nature of the external military involvement becoming clearer, there is a further escalation of the situation and the damage to infrastructure might be larger, keeping Libya out of the oil market for longer,” said Amrita Sen, an analyst at BarCap.
Unrest flared in even the most authoritarian regimes in the Middle East over the weekend. In Syria, crowds set fire to ruling Baath Party headquarters, its main courts complex and phone company branches in an uprising that has resulted in at least four deaths over the past week.
In Yemen, the killing of dozens of anti-government demonstrators in Yemen prompted the country’s ambassador to the UN to resign in protest on Sunday.
Tension also spiralled between Bahrain and Iran as tit-for-tat diplomatic expulsions followed Tehran’s anger at last week’s crackdown. On Monday, Bahrain’s king announced a foreign plot had been foiled and thanked fellow Sunni-ruled neighbours (notably Saudi Arabia) for their support.
“The key is really how Saudi (Arabia) and Iran play out. Cool heads need to prevail. It’s contained at the moment but if things worsen, you see a Mideast premium very quickly,” said Jonathan Barratt, managing director of Commodity Broking Services.
Saudi Arabia, a US ally, has not seen the kind of mass uprisings that have rocked the Arab world this year, but dissent has built up as unrest has taken root in neighbouring Yemen, Bahrain and Oman.
Dozens of Saudi men gathered outside the Interior Ministry in the capital Riyadh on Sunday to demand the release of jailed relatives, amid a heavy police presence. Saudis have been warned protests will not be tolerated as they violate the Koran’s teachings.
UN-backed strikes led by the United States, the UK and France raised the stakes in a civil war that has cut Libya’s oil output to less than a quarter of the previous 1.6 million barrels per day (bpd), nearly paralysing shipments abroad from what used to be the world’s 12th largest crude exporter.
“The main question for the oil markets is how long production outage could last ... We could end up by having two countries or a protracted civil war. We assume Libyan oil exports will be zero for the next six months” said Mike Wittner, Head of Commodities Research at Societe Generale.
Military action on Libyan air defences over the past two days, sanctioned by the UN in a Security Council resolution on Thursday, has crippled Muammar Gaddafi’s capability to launch airstrikes and detect foreign aircraft, a senior US military official said on Sunday.
But Gaddafi’s control of oil infrastructure in the long term would probably mean reshaping deals with foreign oil companies in favour of countries not participating in the attacks.
Libya is considering offering oil block contracts directly to China, India and other nations it sees as friends, Libya’s top oil official said on Saturday, instead of open bidding processes.
China, India, Russia, Brazil and Germany were the five nations that abstained in last week’s UN vote to authorise the use of force against Gaddafi. The other 10 members of the Security Council voted in favour.
The weekend’s military intervention to protect civilians caught up in a one-month-old revolt against Gaddafi drew criticism from Arab League chief Amr Moussa, who questioned the need for a heavy bombardment he said had killed many civilians.