Oil falls after the earthquake, in the Japan the Saudi crackdown

The Saudi police form a point of control, inspection of the cars near the site where a demonstration should be held in the capital Riyadh Sauid Friday. Photo: AP

Brent crude in London fell $ 3 to $112.39 at noon while in New York oil crude withdraw less than $100 a barrel as traders bet that a huge earthquake in the Japan would reduce imports of crude oil in the country.

"Demand for oil [at Japan] could be lower, at least temporarily, because of the earthquake," said Commerzbank analyst Carsten Fritsch.

"After China and the United States, Japan is third largest consumer of commodities in the world and is dependent on imports for almost all products."

The largest earthquake to hit the Japan since the beginning of the records 140 years ago struck the northeast coast, triggering a 30-foot high tsunami that swept away everything in its path, including homesboats, cars and farm buildings.

Future crude also fell as Saudi Arabia launched a security operation mass in a show threatening force to deter the demonstrators of a planned "Day of Rage" to insist that the democratic reforms in the largest exporter of oil in the world.

Illegal demonstrations were to start after Muslim Friday prayers at noon, but as the mosques emptied were there no sign of gatherings, with men of security staffing positions of control in key locations in several cities.

OPEC Friday warned that prices could curb demand later this year, as oil cartel only slightly improved its estimate of growth in world demand for 2011.

The Organization of petroleum exporting countries said that it was raturés in the growth of global oil demand of 1.44 m barrels per day (BPD), or 1. 67pc to 87,83 m barrels this year. That represents only a revision to the marginal increase of 1. 62pc.

Gold was on track for its biggest weekly decline since early January, down $30 since hitting a lifetime of high $1,444.40 an ounce troy Monday. Spot or a $units an ounce in London in early afternoon trade.

"Gold is trading oil offshore, but helps the earthquakes and the tensions in the Middle East to the Japan, said Andrey Kryuchenkov, an analyst at the Capital of VTB." Markets are also nervous with a day of rage in Saudi Arabia. »

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Saudi sovereign offers $36bn deals uprising in the middle of the admonition of oil prices could double.

Growing unrest in the region led experts to warn yesterday evening Brent crude oil prices may double to $111 a barrel mark it culminated yesterday if the crisis continues to spread to other countries in the Middle East.

Team products said Nomura to oil price risk storage in unexplored peaks in the coming weeks if chaos strikes Algeria Similarly, reduce the ability of world reserve thin margins because just before the first Gulf war.

Wednesday, Brent crude rose more than 5MC almost $ 112 a barrel, threat levels that could derail the global economy. It closed at $111.25.

"We could see $220 per barrel should Libya and in Algeria halt oil production." We may be underestimating this speculative activities were largely not present in 1990-1991 ", said Michael Lo, strategist, Bank oil."

The warning came ENI Italy announced the suspension of supplies by the Libya pipeline and a string of foreign companies have been evacuated staff and stop production. Libya holds oil large de l'Afrique reserves and produces 1.6 m barrels per day (b/d), mainly for export to Europe.

German driller Winthershall stopped its production of 100,000 b/d in Libya, whereas ENI is stopped at a string of sites, considerably reducing the flow of 550 b/d. A number of producers have declared "force majeure".

Barclays Capital said 1 m barrels of Libyan output is "locked in", with the other 0.6 m at risk. While Saudi Arabia may respond by raising the output, it takes time and its oil is not a substitute for "Sweet Crude the Libya".

The crisis escalating triggered falls more on the global stock exchanges. Wall Street was down 1pc in trade at the beginning and the FTSE 100 1. 2pc. The Dow Jones index has shed more than 300 points during the three days of 12,075.

Nomura said a closure in Libya and Algeria would reduce global 2.9 m b/d supply and reduce the ability of spare OPEC b/2.1 m d, comparable to levels at the beginning of the Gulf war and worse than during the 2008 spike when prices hit $147.

Two price shocks preceded by - or triggered - a recession in Europe and the United States. Fatih Birol, Chief Economist, International Energy Agency said the last rising already become prices a "serious risk" for the fragile economies of OECD block.

Some analysts fear the underlying image is worse than officially recognized doubting Saudi claims of alternative ample capacity. Wikileaks cable cited comments by geologist of Saudi Aramco oil giant that Kingdom reserves had been exaggerated by 40pc. A second cable cited U.S. diplomats asking if the Saudis "more empowered to make prices downwards for an extended period."

Report from Nomura, who consider the scenario catastrophic to a real crisis in the Gulf, said recent oil price shocks have shown a pattern of three floors, with a final blow-off price in the final phase. The current crisis is the first step.

Soaring oil prices create a dilemma for banks, nasty because they inflationary if caused by the robust global growth, but the deflationist if caused by a tightening of supply which acts as a tax on consumption of nations. Big oil exporters tend to save additional revenues for first price spikes, so the initial effect is draining global demand.

The current image contains elements of both, with an extra touch of liquidity created by the US Federal Reserve leaking into the global system and play havoc with commodity prices.

Secretary of the Treasury Tim Geithner told us Wednesday that the global economy is relatively stong to "manage" the oil shock, insisting on the fact that central banks "have extensive experience in the management of these things."

The European Central Bank (ECB) responded to skyrocketing oil in July 2008 by raising rates even if the Germany and the Italy were in recession at that time there. Nout Wellink, the Governor of Dutch of the ECB, said that this was an error policy.

Circumstances are different this time still also dark. ECB chief Jean-Claude Trichet scored last month that the Bank will be "look at" the hump of prices in the short term, but the ECB rhetoric has since then harden. Fed doves will probably give more weight to the deflationary risks.

Jeremy Leggett, a leader of the task force industry UK peak oil and energy security, says the crisis Mid-East "shows the extreme fragility of the world system." People don't realize the proximity we a potential jump if that agitation reached critical mass in OPEC countries enough. "Governments must develop contingency plans and get cracking on proactive steps while we still have time", he says.

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Saudi shares hit 20 months down fears of contagion of protest

The Saudi benchmark lost 20pc since reaching its 2010 high, there are market bears territory Photo: Reuters

The Tadawul all indexes reference share fell 6 8pc 5,539 points, with Saudi Arabia Basic Industries, manufacturer of petrochemicals most, 7 8pc of landslide.

The index has lost 20pc since reaching its 2010 high, taking into bear market territory.

"Reports of certain arrests of a cleric caused gout." It is now a great fear of contagion in Saudi, said Haissam Arabi, Chief Executive and Manager Gulfmena Alternative Investments funds. "However, things are not all in clear fact that continuing the fall in stocks." There is no clear answer at this time. »

Saudi authorities detained a clerc of Shi'ite in the Eastern Province after he called for a constitutional monarchy and of ending corruption and discrimination, human rights activists said Reuters Tuesday.

Minority of Shi'ite of Arabia, believed be 10pc-15pc of the Saudi population, 18 m has long complained of discrimination, a charge denied by the authorities.

"It is sell all levels." There are several rumors out there and it seems that investors of all the class and type are drawing a line on the markets, says Nadi Bargouti, head of asset management at the Shu'a Capital in Dubai.

"No single person, without unique portfolio can move markets to this extent." It is a complete shock. »

On 17 February, the Prince Talal Bin Abdul Aziz Al Saud, Member of the Royal family of Saudi Arabia, said that the Kingdom may see protests unless King Abdullah proposes reforms, according to the BBC Arabic TV.

The King has increased spending on housing by riyals (£ 7bn) on 23 February. It has increased the budget of the social security of billion riyals, ordered the creation of 1 200 jobs and make a cost of living allowance 15pc permanent employees of the Government.

Saudi Arabia is the world's biggest exporter of oil and the largest Arab economy. Gross won 0 9pc $97.81 US per barrel to 8 pm in e-commerce on the New York Mercantile Exchange.

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Saudi Arabia contagion raises the rout of the Gulf

My Mushaima said Wednesday that demonstrators had "the right to appeal using the Iran" If the Saudi military units to interfere in the fight. Tanks were seen crossing the roadway of 17 miles from Saudi Arabia to Bahrain on Tuesday.

"These were supposed to be Bahrain tanks, returning from Kuwait: this is not a credible story," said Siras Abi Ali, an expert in the Gulf at the level of the risk analysis Exclusive group.

He said that the result at Bahrain will set the model for events across the border. "There is no positive consequence of this for Saudi Arabia." If Bahrain offer of concessions, the Shia Saudi demand similar concessions. Are they cracking down, they could uplift. These people do not want to live in the House of Saud, "he says.

Saudi Arabia activists have called on Facebook for a "day of Rage" on 11 March, despite the lashing sentence to protest Street. An appeal similar to arms in Syria fact long fire because people were afraid, and the security forces the stifled in the egg. "We will closely monitor how many people are, and how far to go, their requirements, see", said Mr. Abi Ali.

Saudi King Abdullah has little latitude. Its own legitimacy comes from members of the Wahhabi clergy, who refuse any compromise with the Shiites. It is 87 and in poor health, raising the prospect of a fight of favourable looming succession within the line hard Minister Prince Nayef. It would crush any protest. The monarchy sought to save time by spending an additional amount of $36bn (£ 22bn) on welfare and wages, but political patronage may hit the wrong note at this stage.

Whatever hope in the West, Mr. Abi Ali said the Middle East is now in the vortex of several revolts to create turmoil for years and destabilize the supply of oil for a long time. "The Arab world will begin to behave like the Swiss," he said.

Slide in the Libya in the civil war has already reduced deliveries of oil by 1 m barrels per day (BPD), cutting in the margin of safety of the world. The International Energy Agency (IEA) said that the Saudis had covered the short-fall even if Saudi Arabia heavy oil is a poor substitute for the "sweet" of the Libya crude oil.

However, analysts suspect the Kingdom had already increased profitability 9 m before barrels of disturbances in Libya and did not add much net offer. There is a debate is raging about whether if the Saudi oil giant aramco can increase yields by 3 m bpd if necessary, as claimed. While the two new fields came flow adding 2 m bpd since the oil shock of 2008, "attrition" on old fields has offset this. "We believe that they are nearly at full capacity,"said an analyst."."

Global reserve capacity may in fact be less than 4 m bpd and perhaps as low as 2 m. during this time, the demand for oil from China alone increased by 850 m bpd last year.

HELIMA Croft at Barclays Capital said the longer Libya, the most damaging crisis continues it would supply to long term. Foreign companies have evacuated staff and may be reluctant to restart operations until the dust settles.

The rebel leaders of Benghazi are considering to investigate oil contracts, reserving the right to renegotiate the conditions in accordance with the "will of the people in the street".

Ms. Croft said foreign oil companies will not sink large sums of money in Libya until it is clear, what will emerge from the cauldron of tribal divisions. A plan for $billion of investments of oil by BP, Shell, Oasis and others over the next three years is in ruins. "With the disintegration of a stable political regime in Libya, we consider the major part of projects as being extremely unlikely to proceed at the time, or even not at all," she said.

Fatih Birol, the IEA Economist ' schief, warned that investment in fresh fields across the Middle East "may be delayed for years." The era of cheap oil is gone. »

The Libyan crisis presented an oil crunch which was likely to occur within three years, given the relentless decline in non-OPEC output in the North Sea and the Mexico.

While the world can cope with the loss of Libyan crude for now, the stakes will be rise sharply, if a country more succumbs and explode off the coast of graphics if the monarchies of the Gulf are losing their grip.

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Saudi stock market breaks three-week losing streak

Shares in Saudi Arabia have dropped in recent weeks, prompting the State purchasing Fund, news that boosted the market on Saturday. Photo: Reuters

Saudi Basic Industries Corp., manufacturer of petrochemicals most climbed 9 1pc, and Al Rajhi Bank, lender of the Kingdom, jumped 7 FP6.

The Tadawul all share index, Monte 7 3pc, the steepest gain since November 2008, at 5,709.91 at the close to Riyadh. The gauge snap a losing stria of 13 days, the longest predatory from a similar period in July 1996.

The increase in oil prices will boost the "strong condition" of the Kingdom, the Finance Minister Ibrahim al-Assaf said Al Arabiya TV.

Shares in Saudi Arabia, which makes comments 20pc of proven reserves of oil, are now attractive and retirement agency public Saudi bought shares last week, he said.

The General Organization of the State social insurance also bought stocks, according to Fuad Aghabi capital Ajeej.

"The Assaf comments have had the greatest impact on the market," said Aghabi, Director of investment Ajeej Capital in Riyadh.

Stocks fell across the region last week, sending shares of Bloomberg GCC 200 Index of the Persian Gulf level lowest since 2009 and propel the benchmark Saudi down the most in two years, on concerns that the turmoil in Libya is spreading across the Middle East.

"With my confidence in the economy and this country, I also took the opportunity" and bought shares, said Finance Minister Al Assaf. "I am an investor in the long term."

Rose oil 2 5pc to a maximum of 29 months yesterday. Crude oil for April delivery rose $104.42 per barrel on the New York Mercantile Exchange, the highest settlement since September 26, 2008.

Shia Muslims in the Eastern province of Saudi Arabia held two events on 3 March to call for the release of prisoners, a rare event in the top world oil exporter.

Department of the Interior said that demonstrations, marches Saudi and the sit-in is "strictly" prohibited by virtue of the laws of the Kingdom, reported the official Saudi press agency, quoting an unidentified Ministry official.

"Comments of the Minister of Finance contributed today to transform the concern of internal unrest," said Aghabi capital Ajeej.

"It remains to see if sentiment will continue to be positive in course of the week".

Saudi Arabia is the only Gulf Arab scholarship open on Saturday.

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Saudi shares launched notice on the Egypt events

Saudi Arabia Tadawul all them share Index decreased 4 1pc with 6,419.89 by Saudi lunchtime.

Market in Saudi Arabia, where the beginning of the work week is Saturday, was the first to respond to violence in Egypt and in the fall of the TASI offers a window on the forceful potential that would emerge when other regional markets reopen Sunday.

"Fall is due to a feeling about what is happening in Egypt and in the United States because the index Dow Jones declined", Friday, said John Sfakianakis, Chief Economist, Riyad Bank Saudi Fransi-Credit Agricole Group.

"You have some collateral damage linked to investors... which are exposed in Egypt and strive to only cover the exhibition through the sale of their positions in Saudi Arabia,"he says."

Tens of thousands of demonstrators met the riot police Friday, the fourth day of violent demonstrations in Egypt. The demonstrators demanded Mubarak eviction and measures to deal with overwhelming poverty in the country, corruption and the growing disparity in income distribution.

The riots - inspired by similar events in Tunisia, two weeks earlier - prompted Mubarak, who decided the most populous Arab nation since 30 years, asked his cabinet resign. But this movement seems unlikely to significantly alleviate the wrath of the Egyptians who say that the leader of 82 years is cruelly their daily lives.

Sent violence index tumbling Egyptian reference nearly 17% over two days, and analysts expect that violence Friday will be another plunge on the Egyptian Exchange and waving in other regional markets.

"The momentum is there, said Sfakianakis, predicting as regional markets drop."

"There is no reason to expect the Saudi market to go up the general feeling is predatory and wait and see rather than the sale and the buy it now", he said.

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Saudi Arabia contagion triggers Gulf rout

My Mushaima said on Wednesday that protesters have “the right to appeal for help from Iran” if Saudi military units interfere in the struggle. Tanks were seen crossing the 17-mile causeway from Saudi Arabia to Bahrain on Tuesday.

“These were supposed to be Bahrain’s tanks returning from Kuwait: that is not a credible story,” said Firas Abi Ali, a Gulf expert at the risk group Exclusive Analysis.

He said the outcome in Bahrain will set the template for events across the border. “There is no good outcome from this for Saudi Arabia. If Bahrain offers concessions, the Saudi Shia will demand similar concessions. If they crack down, they risk an uprising. These people do not want to live under the House of Saud,” he said.

Saudi activists have called on Facebook for a “Day of Rage” on March 11, despite the penalty of lashing for street protest. A similar call to arms in Syria fizzled because people were frightened, and the security forces nipped it in the bud. “We will be watching closely to see how many people turn up, and how far their demands go,” said Mr Abi Ali.

Saudi King Abdullah has scant leeway. His own legitimacy stems from Wahabi clerics, who refuse any compromise with the Shia. He is 87 and in poor health, raising the prospect of an imminent succession struggle that favours the hard-line interior minister Prince Nayef. He would undoubtedly crush any protests. The monarchy has sought to gain time by spending an extra $36bn (£22bn) on welfare and salaries, but patronage politics may strike the wrong note at this stage.

Whatever the hopes in the West, Mr Abi Ali said the Mid-East is now in the vortex of multiple uprisings that will create turmoil for years and destabilise oil supply for a long time. “The Arab world is not going to start behaving like the Swiss,” he said.

Libya’s slide into civil war has already cut oil shipments by 1m barrels per day (bpd), slicing into the world’s safety margin. The International Energy Agency (IEA) said the Saudis had covered the short-fall, though Saudi heavy oil is a poor substitute for Libya’s “sweet” crude.

However, analysts suspect the kingdom had already boosted output to 9m bpd before disruptions in Libya, and has not in fact added much net supply. There is a raging debate over whether the Saudi oil giant Aramco can raise output by 3m bpd if needed, as claimed. While two new fields have come on stream adding 2m bpd since the 2008 oil shock, “attrition” on old fields has offset much of this. “We think they’re close to full capacity,” said one analyst.

Global spare capacity may in reality be less than 4m bpd, and perhaps as low as 2m. Meanwhile, oil demand from China alone rose by 850,000 bpd last year.

Helima Croft at Barclays Capital said the longer Libya’s crisis continues , the more damage it will do to long-term supply. Foreign companies have evacuated staff and may be reluctant to restart operations until the dust settles.

Rebel leaders in Benghazi are planning to investigate oil contracts, reserving the right to renegotiate terms in accordance with the “will of people in the street”.

Ms Croft said foreign oil companies will not sink large sums of money into Libya until it is clear what will emerge from the cauldron of tribal divisions. A plan for $10bn of oil investments by BP, Shell, Oasis and over others the next three years is in tatters. “With the disintegration of a stable political regime in Libya, we view the bulk of the projects as being extremely unlikely to proceed on time, if at all,” she said.

Fatih Birol, the IEA’schief economist, warned that investments in fresh fields across the Middle East “may be deferred for years. The age of cheap oil is over.”

The Libyan crisis has brought forward an oil crunch that was likely to happen within three years or so, given the relentless decline of non-OPEC output in the North Sea and Mexico.

While the world can cope with the loss of Libyan crude for now, the stakes will rise sharply if one more country succumbs, and explode off the charts if Gulf monarchies lose their grip.

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Saudi ruler offers $36bn to stave off uprising amid warning oil price could double

The growing turmoil in the region led experts to warn last night that Brent crude oil prices may double from the $111 a barrel mark it peaked at yesterday if the crisis continues to spread to other Middle Eastern countries.

Nomura's commodity team said oil prices risk vaulting to uncharted highs over coming weeks if chaos hits Algeria as well, reducing global spare capacity to the wafer-thin margins seen just before the first Gulf War.

On Wednesday, Brent crude rose more than 5pc to almost $112 a barrel, threatening levels that could derail the global economy. It closed at $111.25.

"We could see $220 a barrel should both Libya and Algeria halt oil production. We could be underestimating this as speculative activiites were largely not present in 1990-1991," said Michael Lo, the bank's oil strategist.

The warning came as Italy's ENI announced a suspension of supplies through Libya's gas pipeline, and a string of foreign companies evacuated staff and shut production. Libya holds Africa's biggest oil reserves and produces 1.6m barrels a day (b/d), mostly for export to Europe.

The German driller Winthershall halted its 100,000 b/d production in Libya, while ENI stopped at a string of sites, vastly reducing its flow of 550,000 b/d. A number of producers have declared "force majeure".

Barclays Capital said 1m b/d of Libyan output is "shut in", with the other 0.6m at risk. While Saudi Arabia can step in by raising output, this takes time and its oil is not a substitute for Libya's "sweet crude".

The escalating crisis set off further falls on global bourses. Wall Street was down 1pc in early trading and the FTSE 100 fell 1.2pc. The Dow has shed more than 300 points over the past three days to 12,075.

Nomura said a shut-down in both Libya and Algeria would cut global supply by 2.9m b/d and reduce OPEC spare capacity to 2.1m b/d, comparable with levels at the onset of the Gulf War and worse than during the 2008 spike, when prices hit $147.

Both price shocks preceeded – or triggered – a recession in Europe and the US. Fatih Birol, chief economist for the International Energy Agency, said the latest price rise had already become a "serious risk" for the fragile economies of the OECD bloc.

Some analysts fear the underlying picture is worse that officially recognised, doubting Saudi claims of ample spare capacity. A Wikileaks cable cited comments by a geologist for the Saudi oil giant Aramco that the kingdom's reserves had been overstated by 40pc. A second cable cited US diplomats asking whether the Saudis "any longer have the power to drive prices down for a prolonged period".

Nomura's report, which does not examine the catastrophic scenario of a full-blown Gulf crisis, said past oil shocks have shown a three-stage pattern, with a final blow-off in prices in the final phase. The current crisis is at stage one.

Surging oil prices create a nasty dilemma for central banks since they are inflationary if caused by robust global growth, but deflationary if caused by a supply crunch that acts as a tax on consuming nations. The big oil exporters tend to save extra revenues from price spikes at first, so the initial effect is to drain global demand.

The current picture contains elements of both, with an added twist of liquidity created by the US Federal Reserve that is leaking into the global system and playing havoc with commodity pricing.

US Treasury Secretary Tim Geithner said on Wednesday that the world economy is stong enough to "handle" the oil shock, insisting that central banks "have a lot of experience in managing these things".

The European Central Bank (ECB) responded to the oil spike in July 2008 by raising rates even though Germany and Italy were in recession by then. Nout Wellink, the ECB's Dutch governor, said this had been a policy error.

Circumstances are different this time yet also murky. ECB chief Jean-Claude Trichet signalled last month that the bank will "look through" the short-term price hump, but ECB rhetoric has since turned more hawkish. Fed doves will undoubtedly give more weight to the deflationary risks.

Jeremy Leggett, a leader of the UK industry task force on peak oil and energy security, said the Mid-East crisis "shows the extreme fragility of the global system. People don't realise how close we are to a potential precipice if this unrest reaches critical mass in enough OPEC countries. Governments need to draw up emergency plans and get cracking on proactive measures while we still have time," he said.

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Saudi ruler offers $36bn to stave off uprising amid warning oil price could double

The growing turmoil in the region led experts to warn last night that Brent crude oil prices may double from the $111 a barrel mark it peaked at yesterday if the crisis continues to spread to other Middle Eastern countries.

Nomura's commodity team said oil prices risk vaulting to uncharted highs over coming weeks if chaos hits Algeria as well, reducing global spare capacity to the wafer-thin margins seen just before the first Gulf War.

On Wednesday, Brent crude rose more than 5pc to almost $112 a barrel, threatening levels that could derail the global economy. It closed at $111.25.

"We could see $220 a barrel should both Libya and Algeria halt oil production. We could be underestimating this as speculative activiites were largely not present in 1990-1991," said Michael Lo, the bank's oil strategist.

The warning came as Italy's ENI announced a suspension of supplies through Libya's gas pipeline, and a string of foreign companies evacuated staff and shut production. Libya holds Africa's biggest oil reserves and produces 1.6m barrels a day (b/d), mostly for export to Europe.

The German driller Winthershall halted its 100,000 b/d production in Libya, while ENI stopped at a string of sites, vastly reducing its flow of 550,000 b/d. A number of producers have declared "force majeure".

Barclays Capital said 1m b/d of Libyan output is "shut in", with the other 0.6m at risk. While Saudi Arabia can step in by raising output, this takes time and its oil is not a substitute for Libya's "sweet crude".

The escalating crisis set off further falls on global bourses. Wall Street was down 1pc in early trading and the FTSE 100 fell 1.2pc. The Dow has shed more than 300 points over the past three days to 12,075.

Nomura said a shut-down in both Libya and Algeria would cut global supply by 2.9m b/d and reduce OPEC spare capacity to 2.1m b/d, comparable with levels at the onset of the Gulf War and worse than during the 2008 spike, when prices hit $147.

Both price shocks preceeded – or triggered – a recession in Europe and the US. Fatih Birol, chief economist for the International Energy Agency, said the latest price rise had already become a "serious risk" for the fragile economies of the OECD bloc.

Some analysts fear the underlying picture is worse that officially recognised, doubting Saudi claims of ample spare capacity. A Wikileaks cable cited comments by a geologist for the Saudi oil giant Aramco that the kingdom's reserves had been overstated by 40pc. A second cable cited US diplomats asking whether the Saudis "any longer have the power to drive prices down for a prolonged period".

Nomura's report, which does not examine the catastrophic scenario of a full-blown Gulf crisis, said past oil shocks have shown a three-stage pattern, with a final blow-off in prices in the final phase. The current crisis is at stage one.

Surging oil prices create a nasty dilemma for central banks since they are inflationary if caused by robust global growth, but deflationary if caused by a supply crunch that acts as a tax on consuming nations. The big oil exporters tend to save extra revenues from price spikes at first, so the initial effect is to drain global demand.

The current picture contains elements of both, with an added twist of liquidity created by the US Federal Reserve that is leaking into the global system and playing havoc with commodity pricing.

US Treasury Secretary Tim Geithner said on Wednesday that the world economy is stong enough to "handle" the oil shock, insisting that central banks "have a lot of experience in managing these things".

The European Central Bank (ECB) responded to the oil spike in July 2008 by raising rates even though Germany and Italy were in recession by then. Nout Wellink, the ECB's Dutch governor, said this had been a policy error.

Circumstances are different this time yet also murky. ECB chief Jean-Claude Trichet signalled last month that the bank will "look through" the short-term price hump, but ECB rhetoric has since turned more hawkish. Fed doves will undoubtedly give more weight to the deflationary risks.

Jeremy Leggett, a leader of the UK industry task force on peak oil and energy security, said the Mid-East crisis "shows the extreme fragility of the global system. People don't realise how close we are to a potential precipice if this unrest reaches critical mass in enough OPEC countries. Governments need to draw up emergency plans and get cracking on proactive measures while we still have time," he said.

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Mid-East contagion fears for Saudi oil fields

 Saudi Arabia's main oil pipeline. 'The Shia are 10pc of the Saudi population. They are deeply aggrieved and marginalised, and sit on top of the kingdom's oil reserves' Photo: GETTY

"Yemen, Sudan, Jordan and Syria all look vulnerable. However, the greatest risk in terms of both probability and severity is in Saudi Arabia," said a report by risk consultants Exclusive Analysis.

While markets have focused on possible disruption to the Suez Canal, conduit for 8pc of global shipping, it is unlikely that Egyptian leaders of any stripe would cut off an income stream worth $5bn (£3.1bn) a year to the Egyptian state.

"I don't think the Egyptians will ever dare to touch it," said Opec chief Abdalla El-Badri, adding that the separate Suez oil pipeline is "very well protected". The canal was blockaded after the Six Days War in 1967.

There has been less focus on the risk of instability spreading to Saudi Arabia's Eastern Province, headquarters of the Saudi oil giant Aramco. The region boasts the vast Safaniya, Shaybah and Ghawar oilfields. "This is potentially far more dangerous," said Faysal Itani, Mid-East strategist at Exclusive.

"The Shia are 10pc of the Saudi population. They are deeply aggrieved and marginalised, and sit on top of the kingdom's oil reserves. There have been frequent confrontations and street fights with the security forces that are very rarely reported in the media," he said.

The Saudi Shia last rose up in mass civil disobedience in the "Intifada" of 1979, inspired by the Khomeini revolution in Iran. Clashes led to 21 deaths. Mr Itani said it is unclear whether the Saudi military could cope with a serious outbreak of protest in the province.

Saudi King Abdullah is clearly alarmed by fast-moving events in Egypt and the Arab world. In a statement published by the Saudi press agency he said agitators had "infiltrated Egypt to destabilise its security and incite malicious sedition".

The accusations seem aimed at Iran's Shia regime, which has openly endorsed the "rightful demands" of the protest movement. There is deep concern in Sunni Arab countries that Iran is attempting to create a "Shia Crescent" through Iraq, Bahrain and into the Gulf areas of Saudi Arabia, hoping to become the hegemonic force in global oil supply.

Goldman Sachs said the Mid-East holds 61pc of the world's proven oil reserves – and 36pc of current supply – which may compel global leaders to make "concentrated efforts" to stabilise the region. The bank said high levels of affluence should shield Saudi Arabia and the Gulf's oil-rich states from "political contagion".

However, a third of Saudi Arabia's 25m residents are ill-assimilated foreigners and the country faces a "youth bulge", with unemployment at 42pc among those aged 20 to 24.

Nima Khorrami Assl, a Gulf expert at the Transnational Crisis Project, said Shi'ites have been "stigmatised as a result of excessive paranoia since Iran's Islamic Revolution" and face systemic barriers in education and jobs. "Should the Gulf states do nothing or attempt to preserve the status quo, social unrest becomes inevitable. The current situation is inherently unstable," he told Foreign Policy Journal.

Exclusive Analysis said Egypt's revolt had gone beyond the point of no return as protesters plan a 1m stong rally on Tuesday, with president Hosni Mubarak likely to be ousted within 30 days.

John Cochrane, the group's global risk strategist, said the regime has so far refrained from ordering the army to crush protesters knowing that many officers will refuse to obey. "If asked to use lethal force, it is questionable whether the army's cohesion will hold together," he said.

The Muslim Brotherhood, the best-organised of the diffuse protest movement, has reached out to the military, praising its "long and honourable history", but it has also begun to set up its own populist militias to protect the streets.

A future government – with the Brotherhood pulling some strings – is expected to renationalise parts of industry, shifting away from "free-market" policies used to weaken the labour unions and steer contracts to an incestuous elite. Ezz Steel and other parts of the business empire of Ahmed Ezz may be seized, as well as infrastructure assets linked to corrupt ministers.

The Brotherhood's "old guard" has so far controlled its hotheads but the organisation is close to Hamas in Gaza. Israel may soon find that it can no longer count on a secure southern border, even if Egypt's peace treaty remains in name.

The outbreak of Arab populism vindicates claims by US neo-conservatives that the region is ripe for change, but this is not what Washington had in mind. "US interests are the first casualty," said Mr Itani.

Fairly or unfairly, America is tarred with the Mubarak brush. Cairo may switch allegiance to the rising powers of Turkey, India, and above all, China.

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Oil markets brace for Saudi 'rage' as global spare capacity wears thin

The flow of Libyan oil has so far fallen by 1m bpd. This may not sound much against global supply of 88m, but oil prices are determined by levels of spare capacity once supply tightens.

Beyond a certain point, the price spiral can kick in with explosive force until the economic damage crushes demand.

Libya's conflict has already cut spare capacity by a third. Hopes for a quick solution are fading as the country succumbs to civil war along ancient lines of tribal cleavage. A raft of new projects planned for the Sirte Basin by mid-decade will be mothballed.

Chris Skrebowski, editor of Petroleum Review, said the long-denied oil crunch is starting to bite. "We cling to the comfort blanket that spare capacity exists, but it is mostly fictional, or inoperable. If you take 2m bpd off the figure, the whole dynamic of global oil supply changes," he said.

A Wikileaks cable cited a Saudi geologist claiming that the kingdom's reserves had been overstated by 40pc. A second cable questioned whether the Saudis "any longer have the power to drive prices down for a prolonged period".

Some investors see trouble. They are buying oil options contracts for $150 and $200 a barrel with expiry dates late this year, either as a bet or as an insurance against Mid-East mayhem. Barclays Capital said the options "call skew" is more stretched now that it was during the 2008 spike.

The implication is that markets are less sure this time that the crisis will blow over quickly, perhaps because the events the last month amount a strategic rupture.

The entire political order of the Middle East has effectively disintegrated, risking of years upheaval in a region that provides 36pc of global oil supply and holds 61pc of proven reserves.

Mass protest by Bahrain's Shi'ite majority against the ruling Sunni dynasty has been a rude awakening for investors who thought oil wealth would shield the Gulf against turmoil.

"We in the West have been listening to the wrong people," said Mr Skrebowski. "We have not been talking to the young: we missed what was happening underneath."

Bahrain sits at the epicentre of the world's energy system. It is a hop to Saudi Arabia's Eastern Province, home to an equally aggrieved Shi'ite population and the kingdom's giant oil fields.

Bahrain's Al Khalifa family has sought to defuse the island's crisis since the original crack-down, when seven people died. Yet protesters have refused to drift away, digging in at the financial hub and staging rallies outside the interior ministry. Sectarian violence between Sunni and Shia has been escalating.

What happens on the tiny island is being watched with alarm across the Gulf. The "demonstration effect" has already led to Shia protests in the Saudi oil region. Saudi police have released a Shia cleric arrested last week for demanding a constitutional monarchy.

Yet the country's Wahabi clerics also warned against "sedition" and violations of Islamic law, while the interior ministry said all rallies were banned and warned that police would use "all measures to prevent any attempt to disrupt public order."

The threats aim to quash a "Day or Rage" planned by cyber-protesters for Friday, allegedy swollen to 17,000. A similar event in Syria was nipped in the bud by secret police.

The world's economic fate now hangs on the success of Wahabi repression. Any sign that the Saudis are losing their grip risks an oil shock large enough to derail the global recovery.

Nobody knows where the "inflexion point" is. Bank of America says we are already in the danger zone since energy costs as a share of global GDP have reached 8.5pc, near historic peaks.

Deutsche Bank said the outcome differs depending on whether spikes are driven by booming demand or a supply crunch. It warns that a sudden jump to $150 will abort world recovery.

Former Fed chief Alan Greenspan said economists have been "bedevilled by over the years" trying to quantity the effect of oil shocks. "We don't know fully where all the channels are. My view is that when oil prices get up to this area and start to move up even higher, you do have to start to worry."

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