Colonel Qaddafi, branded the "?mad dog of Libya" by former president Ronald Reagan, is dead. Defiant until the very end according to his aides, he kept up his delusions of returning to power and taking Libya back for his own family's personal gain. And now that the fighting is done with, NATO is preparing to withdraw and the Libyans are busy planning their first free elections, the question that must be asked is this: how will this affect the rest of the world? Here's what you need to know:
Why Libya Mattered to NATO
The first question to ask if we want to understand how this will affect the world's economy is why Libya mattered to NATO to begin with. After all, Syrians are fighting a similar battle against their dictator, but to date the leaders of NATO seem to be mum on the subject except for a handful of watered down security council resolutions.
The official answer is that Libya's revolution had gone further than the one in Syria, to the point of open civil war and that NATO forces were there on a humanitarian mission to protect civilians in the rebel areas. However, in back rooms it has also been whispered that the real reason for NATO involvement was that Libya has oil while Syria does not. This is important because of the fact that world oil prices had been trending upward in the wake of the revolt in that country and indeed in the wake of the Arab Spring.
Immediate Reaction: Prices Trend Downward
The immediate reaction to the news of Qaddafi's demise in world oil markets was for prices to begin to fall. However, this was quickly corrected and prices came back up again within a day or two to over $100 a barrel. Forbes, in their coverage of the death of Qaddafi speculated that world oil markets had "?rapidly discounted the effect of a return of 700,000 barrels of oil" to the market.
The thing is, Libya's oil production was fairly minimal, even before the revolution, accounting for just 5% of OPEC output and 2% of overall world oil production. This means that realistically, even if Libya's new government rapidly cranks up the pumps and gets back to pre-revolution numbers, it will have a fairly minimal affect on the world economy.
The Elephant in the Room: Saudi Arabia
To my mind however, the elephant in the room and the one that everyone has ignored in the wake of Qaddafi's death is Saudi Arabia. The kingdom is the world's second largest producer of crude oil (after Russia) and thus has a much greater influence on world markets than almost any other group. The reason I'm concerned about it is that on two days after Qaddafi was killed, the heir apparent to the Saudi throne died in New York.
Crown Prince Sultan bin Abdul-Aziz Al Saud was the next in line for the thrown and news reports say that his death is throwing the kingdom into a bit of a tizzy as calls for reform grow louder now that there is no clear chain of succession. In the wake of Qaddafi's death, I imagine that such calls could grow even more stringent as revolutionaries looking for greater freedom are emboldened in the kingdom as well.
Back to Syria
All this is also to say nothing of Syria's Bashar El Assad, who is seeing his control crumble and his people increasingly calling for him to join Qaddafi on the dead leader's parade. However, in the case of Syria, because it shares a border with Israel, Assad, if he feels his government is imminent danger of collapse, may well decide to try to divert his people's attention by provoking a war with that country, thus potentially sparking another Middle East conflagration, which could in turn further disrupt world oil markets.
Bottom Line
It's still too early to make firm predictions about what Qaddafi's death may mean for world oil markets, to say nothing of stocks and the Forex market (both of which are quite sensitive to oil price shocks). However, it is possible to say that predictions of sharp rises in the price of oil have both been given a boost and a reason to be deflated in the wake of the news. It all depends primarily on how the rest of the Middle East takes the news and whether the Arab Spring is galvanized by it, or crushed more ruthlessly than ever.