The wave of unrest gripping the Middle East began to disrupt global energy supplies as violence in Libya shut down the country's ports, curtailed its oil exports, and sent more foreign companies fleeing.
Two European oil firms - Spain's Repsol YPF SA and Italy's Eni SpA - said they had suspended some or all of their operations in Libya, adding to the growing list of companies limiting their output or withdrawing staff from the country. Canada's Suncor Energy Inc. evacuated most of its expatriate employees and their families on Monday and Tuesday, a spokesman said.
Facing the prospect of a shutdown in Libya's oil supplies, traders drove prices to their loftiest levels in two-and-a-half years. On the New York Mercantile Exchange, crude jumped $7.37 a barrel, or 8.6 per cent, from Friday to settle at $93.57 (U.S.), the highest since October, 2008. Brent oil for April delivery vaulted as high as $108.57 a barrel.
Libya's role in overall global oil supply is relatively small - it accounts for roughly 2 per cent of daily production, or 1.6 million barrels a day - but significant, particularly for Europe, a major customer. Faced with a major uprising, the country's leader, Moammar Gadhafi, is engaged in a brutal effort to maintain his hold on power that has rapidly devolved into something resembling a civil war.
The level of violence in Libya is a new turn in the uprisings that began in Tunisia and have spread to Egypt, Bahrain, Yemen, and beyond. Unlike Libya, none of those countries is a big producer of oil.
"Because Libya is the first major oil exporter affected, it's making people - how shall I put it? - anxious about oil supply going forward," says Bhushan Bahree, senior director at IHS Cambridge Energy Research Associates.
The sheer unpredictability of what will happen in the region - just weeks ago, political change of any kind appeared unlikely - has traders and companies struggling to prepare for the unforeseen.
Oil prices are going up because "people have the worst-case scenario in the back of their minds," says Manouchehr Takin, a senior petroleum analyst at London's Centre for Global Energy Studies. "They think this so-called domino effect could continue and reach the Persian Gulf and Saudi Arabia."
Most experts say the chances of unrest unfolding in Saudi Arabia, the linchpin of global oil supply, remain slim. The country's King Abdullah is returning home Wednesday after a three-month absence for medical treatment and so far calls for change remain modest (for instance, forty journalists and activists signed a public "letter to the King" asking the much-respected monarch for various reforms).
Saudi Arabia on Tuesday rushed to assure the world that it had ample ability to supply additional oil if production in Libya was cut off. Saudi Arabia is the de facto leader of the Organization of the Petroleum Exporting Countries, the 12-member group where Libya is a small contributor.
"This is a situation of fear, concern, that will be very short-term and will have no long-term effect," Saudi's Oil Minister Ali al-Naimi told a press conference in Riyadh.
The desert kingdom in recent years has always sought to calm markets when prices spike or global oil supply looks uncertain. On Tuesday, the country hosted a meeting of the International Energy Forum, which brings together energy ministers from around the world.
Saudi Arabia has capacity to produce as much as 12 million barrels of oil a day and its current output of 8.3 million barrels gives the country a large cushion to fill any gaps, according to oil market analysts. Individual countries and the International Energy Agency also have oil stockpiles that can be used in the event global supply is disrupted.
In Libya, meanwhile, the current state of chaos makes it difficult to predict if and when it will return to its habitual role in energy markets. Canada's Suncor and SNC-Lavalin Group Inc., a Montreal-based multinational with projects in Libya, have suspended some of their work and taken steps to ensure the safety of their employees. SNC won a substantial contract last year to build a new international airport in Benghazi, the epicentre of the anti-government uprising.
Calgary's Ensign Energy Services Inc., which acquired three drilling rigs in Libya in 2005, did not respond to requests for comment on Tuesday.
Some analysts predict that continued instability in the Middle East will drive oil prices still higher, undermining the global economic recovery. Others believe that barring a major shock - such as unrest in Saudi Arabia - the impact of the unrest on prices will soon fade.
Many say that recent weeks clearly show the hazards of making predictions. "This whole event has been so surprising," says Robert Mabro, president of the Oxford Institute for Energy Studies. "I don't smell any danger in Kuwait, Saudi Arabia or Abu Dhabi, but things are so unpredictable you never know."
Iran is another question mark, added Martin King, a veteran oil market analyst at FirstEnergy Capital in Calgary. The country produces 3.5 million barrels a day.
"There's the right mix of demographics, an extremely young population and the same people running the country for 32 years," said Mr. King. "To me that's the next one on the radar. With Saudi, I'd say it's a pretty low probability that something happens there."
With files from reporter Iain Marlow in Toronto.