In Col. Moammar Gadhafi , Libya has had a dictator that makes Egypt's deposed Hosni Mubarak look like a humanitarian statesman. This week, in an 80-minute speech which was megalomaniacal even by Gadhafi's standards, he proclaimed himself to be "history, resistance, liberty, glory, revolution," and blamed the uprising on pills and brainwashing as his hired thugs roamed Tripoli, firing indiscriminately.
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In further contrast to Mubarak, Gadhafi has been staunchly and provocatively anti-American. His government was implicated in the 1986 bombing of a Berlin discotheque and in the terrorist downing of Pan Am flight 103 over Lockerbie Scotland in 1988. Despite some subsequent better behavior, which contributed to a lifting of international sanctions in 2003 and an invitation to the United Nations, Gadhafi hugged and bestowed a hero's welcome on the convicted Lockerbie bomber freed in 2009 by the Scottish authorities. Former president Ronald Reagan called him the "mad dog of the Middle East" and in the 1980s launched air strikes, one of which killed one of Gadhafi's children. Gadhafi preserved the ruins of one of his homes and made a televised appearance there this week to blame the United States for the revolt against him.
In sum, Gadhafi surely ranks high on the list of world leaders the U.S. would most like to see overthrown. So why did stock markets in the U.S. and around the world plunge as the Libyan uprising gained strength? In a word: oil.
As I noted in a recent column on Egypt , big institutional investors who dominate trading don't like change. They especially dislike change that threatens the flow of a major global resource. They tend to sell first, then sort out the implications. So what are they?
Unlike Egypt, whose oil reserves are negligible, Libya possesses the world's ninth largest oil reserves, amounting to 47 billion barrels, according to the CIA World Factbook. While Libya has scant trade with the U.S., it supplies much of the oil and gas to Europe -- especially Italy, which cut off a major Libyan pipeline this week. Oil prices promptly spiked above $100 a barrel.
Saudi Arabia, which has the world's largest reserves by far, rushed to reassure investors that it had ample capacity and would act to stabilize supply. But Saudi Arabia, even more than Libya, is what oil investors are worried about. As dominoes fall across North Africa, where will the turmoil stop? Bahrain, an island-kingdom connected to Saudi Arabia by bridge, is facing its own uprising, as is Yemen, which shares a long border on the Arabian Peninsula. Neither is an especially large factor in oil production, but their struggles suggest that political unrest isn't confined to Northern Africa. The Saudi Arabian royal family rolled out a $36 billion "stimulus" program, in what looked like a thinly disguised ploy to buy the loyalty of their subjects. But will Saudis continue to trade money for freedom—and if so, for how long?
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