"This is potentially worse for oil than the Iran crisis in 1979," said Paul Horsnell, head of oil research at Barclays Capital. "That was a revolution in one country, here there are so many countries at once. The world has only 4.5m barrels-per-day (bpd) of spare capacity, which is not comfortable."
US oil contracts jumped more than $9 a barrel in a matter of hours on Tuesday to touch $98, chasing Brent crude at a 30-month high of $109 as the whole global oil system is drawn into the vortex.
While Egypt is a minor oil player, Libya's Sirte Basin holds Africa's largest reserves and supplies 1.4m bpd in exports, mostly to Italy, Germany and Spain.
BP, Statoil, Total and ENI have begun evacuating families and non-essential staff from Libya. BP chief Bob Dudley told Sky News that the company has only limited exploration in Libya but "remains committed to doing business" there.
Germans oil explorer Wintershall said it was winding down its Libyan operations, but Italy's ENI has most to lose from its pipeline to Libya. ENI's stock tumbled 5pc in Milan on Monday, leading a 3.6pc fall in the MIB index.
Global oil inventories are higher than before the 2008 price spike, and OPEC can raise output if needed. It has refused to act so far despite pleas from the International Energy Agency (IEA) that the supply picture is already "alarming".
A Saudi official said global oil ministers meeting tomorrow in Riyadh will examine market "volatility", but dashed hopes of OPEC action, saying world markets are "sufficiently supplied".
Though Libya's oil fields are big enough to influence global supply, producing 2.3pc of world output, investors have broader concerns. The lighting speed of events in a country that was stable just days ago has caused markets to doubt assurances about Saudi Arabia and the Gulf states. The Gulf region ships a third of global oil output.
Credit default swaps on Saudi Arabia's debt jumped to 140 basis points on Monday, while Bahrain rose to 305 despite an olive branch from the Sunni royal family to Shi'ite protestors. The island's Grand Prix in March has been cancelled.
Fitch Ratings downgraded Libya on Monday on political risk although the 6m-strong country has foreign assets of $139bn (£85.7bn) or 190pc of GDP, no foreign debt, and a better balance sheet than Saudi Arabia.
Michael Lewis, commodities chief at Deutsche Bank, said oil markets are bracing for trouble. December "call options" with a strike price of $120 on US crude have doubled suddenly, indicating fears of a nasty escalation. "Libya raises the stakes," he said.
Mr Lewis said oil prices tend to cause economic damage at a $95 to $100 for US crude. As a rule of thumb, a sustained $10 rise in price lops 0.5pc off US growth over two years, and worse if it reaches a self-feeding tipping point. "It's like a $50bn tax," he said.
Mr Horsnell said the global energy crunch is haunting us again after a brief respite during the financial crisis. "In just two years, the world has grown so fast as to consume additional volume equal to the output of Iraq and Kuwait combined," he said.
While oil is likely to keep flowing from Mid-East states whatever the political colour of the regimes, it is less clear that global oil companies will continue to explore or invest in regions where nobody knows the rules of the game. "It matters a lot what the investment climate is for long-term fixed capital projects," he said.
The IEA has called for $30 trillion of investment in energy projects over the next 20 years to keep global growth on track and meet explosive demand from China. The task may soon be harder.
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