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Libya will cover the second wave of world crisis
Material posted: Publication date: 25-02-2011

Economic recovery after the 2008 crisis may hinder the developments in North Africa. Oil prices reached a 2.5-year high, and judging by the ongoing unrest in Libya, the upper limit is not yet reached— it is possible to overcome the barrier of $150 per barrel. If for Russia the rise of prices on black gold is a generally positive factor for the world economy— the path to recession.

For the first time since August 2008 the cost of black gold has exceeded the psychological level of $100 a barrel, over two days the prices grew by more than 6%. By the end of trading holiday on 23 February Brent crude on London exchange ICE rose to $111,25 a barrel, causing serious concern among economists. Political reason pricing in the absence of market conditions will create another bubble that may burst along with the global economy.

The sharp jump caused by the unrest in one of the largest oil producing countries— Libya. In terms of proven oil reserves (5.1 billion tons), Libya ranks first in Africa and fifth among the countries— members of OPEC (after Saudi Arabia, Kuwait, UAE and Iraq). Annual production of 75-77 million tons of oil per year, of which is consumed within the country not more than 7-8 million tons. The rest goes for export to Europe and USA.

1. Europe in anticipation of a recession

Europe was beginning to panic because of rising prices for raw materials. According to economists, if the oil prices will remain at current levels or goes up, the forecasts of world growth will be questioned. Chief strategist for investment Bank Morgan Stanley Jonathan garner believes that if the oil price exceeds $120 per barrel, the world economy may start a new serious downturn.

"Even if on an annual basis, oil prices will remain at current levels, it will already mean an increase of 30% compared with 2010," according to the expert of the German chamber of Commerce Felix Neugart for publication Frankfurter Allgemeine. A price increase of 1% costs the German economy around € 0.5 billion, thus, even at current prices, one can speak of 15 billion euros of additional costs for the economy. The same applies to other energy-consuming European countries.

Rising energy costs may be the main cause of a slowing global economic recovery, as it will cause the growth of consumer prices,— said GZT.RU the chief of Department of Analytics Forex Club Andrey Dirgin. Coupled with the sharp rise in food prices this can shake the stability of the trend of recovery of global economic conditions. "In fact, we may be witnessing a widespread increase of prices for the entire range of consumer products from gasoline to sugar," the analyst notes.

2. Oil to the Russian budget

For Russia, at first glance, the rise in oil prices means only the increase of budget revenues from import of black gold. So, last week, Finance Minister Alexei Kudrin expressed an opinion that when the cost of oil around $100 a barrel Russia can reach a balanced budget in two years, i.e. in 2014 and not in 2015 as planned.

In connection with the new rates, the Ministry of economic development can even change forecast for 2011. In December 2010 the MAYOR increased the forecast of average prices for 2011 from $75 to $81 per barrel in 2012 from $78 to $83, for 2013— from $79 to $84. At the meeting in government on Tuesday, February 22, Prime Minister Vladimir Putin said that if the average oil price at $93 per barrel, the Reserve Fund could double in the current year and reach to 1.45 trillion rubles.

Budget revenue from the energy sector


In 2010, revenues from the enterprises of fuel and energy complex in the Russian budget exceeded 4 trillion rubles. "In 2010, according to preliminary calculations, revenues from the sector amounted to 4.1 trillion rubles, which is more than 50% of all revenues in the budget," said Prime Minister Vladimir Putin in early February at a meeting on the results of operations of the FEC in 2010.

"If the average oil price this year will be $110 per barrel, inflation in Russia can reach 11%",— said Andrey Dirgin. Interestingly, in Russia, according to the analyst, the rise in world oil prices will contribute to the strengthening of the ruble up to 23 rubles per dollar. Despite rising inflation, this will cause a new round of consumer boom on the back of growth in volumes of consumer crediting.3

3. What's the problem?

The danger is that rising oil prices are not provided by market conditions— a sharp economic demand with the increased consumption of in the market, says leading expert "Engineering company "2K"" Sergey Voskresensky. "Thus, now is the inflation of another bubble,— says the interlocutor GZT.EN.— Higher oil prices today, the faster will be the rate of decline".

The consequences of the collapse of the oil market for the fledgling after the crisis of the world economy can be very disappointing, "it is likely the return of the recession", sums up the resurrection.

An additional negative factor may be the deterioration of the situation in Saudi Arabia. "In this case, oil prices may test the level of $150 per barrel, and the consequences for the world economy will be even more disastrous, predicts the co— Director of the analytical Department of "Investkafe" Dmitry Adamidov.— It is a direct way for the second wave of crisis".

4. A spoonful of honey

With the current situation is important and the psychological factor, says Andrew Dirgin. According to him, investors fear that the day reserves of OPEC, including Libya, can be reduced to 2.1 million barrels, as happened during the Gulf war of 1991. But if the unrest will spread to Saudi Arabia and Kuwait, we can hardly expect a significant growth of prices in the medium term,— says the analyst.

"At the same time, today the market has tools to curb prices for oil,— adds Sergey Voskresensky.— OPEC, in particular, may increase quotas for oil production, which will somewhat cool the market."


Oksana Novozhenina


Tags: crisis , Libya , Africa

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