Whether you produce the stuff, refine it, consume it or speculate in it, it's impossible to separate oil from political risk.
Today the focus is on Egypt and Libya. Tomorrow, it could be Algeria, Saudi Arabia or Nigeria that triggers a price shock.
The supercharged price of crude is part of a new normal, where political risk trumps the old law of supply and demand.
"Oil increasingly comes from unstable parts of the world," pointed out geopolitical risk expert Ian Bremmer, president of Eurasia Group. "It's the Persian Gulf, it's West Africa. It's the Caspian. Those are not places we vacation. Those are places over time that are more and more unstable."
And in this uncertain environment, politics matters more than market outcomes, Mr. Bremmer said.
In the grand scheme of things, Libya is a relatively small oil player. It's the 18th-largest producer in the world and ranks ninth in proven reserves. The world can easily cope without its oil.
The concern, however, is that Libya is a harbinger of what may lie ahead in the Arab world, where democracy is stunted and small elites control the vast oil wealth.
As instability moves up the ranks of oil-producing countries, the price spikes are likely to be longer and more intense.
"It's been so hard to predict where the next domino might be. If you look at a map, you've got Egypt, Tunisia, Libya," remarked James Hamilton, an economics professor at the University of California-San Diego. "Algeria would be another possibility. And they're a bigger oil producer than Libya."
The damage so far seems to be contained. But the risk of further disruptions remains "pretty considerable," Prof. Hamilton said. Just imagine, then, what the impact would be if the turmoil hit production in Saudi Arabia or Iran, the world's No. 2 and No. 4 producers.
"If it were to end up in some place like Saudi Arabia, of course that would be a whole new ball game, in terms of the potential disruption to world supplies - bigger than anything we've ever tried to get through," Prof. Hamilton said.
Here we take a look at the world's crude hot spots, and rate the potential for unrest.
Oil production: 9.8 million barrels a day. Reserves: 265 billion barrels.
In many ways, Saudi Arabia is OPEC. It's the world's second-largest producer after Russia. And it sits on one-fifth of the world's known reserves. Any hint of unrest here would make the recent oil shock look like a blip. Dissidents, presumably including its restive Palestinian population, are anonymously calling for a "day of rage" on March 11. But this isn't Egypt or Libya. Yes, the country has a large and underemployed generation of young people . But 80-year-old King Abdullah II keeps his people pampered and wealthy, recently announcing as much as $37-billion in perks. It's also unlikely that the U.S. would stand idly by if the security of all that crude was threatened by rebellion - particularly if it involved militant fundamentalists who have attacked oil installations in the past.
Oil production: 4.2 million barrels a day. Reserves: 138 billion barrels.
Any number of things could go wrong here - from protests at home to conflict with Israel. And that could affect its capacity to produce and export oil to customers in Europe and Asia. Experts say the hard-line Islamist government isn't likely to topple, which makes it more of a threat to the region. "The fact that Iranians are going to become more assertive and provocative is something that can scare oil markets," political risk analyst Ian Bremmer says. But the country with the world's third-largest oil reserves shares much of the Arab world's economic woes, including double-digit unemployment, with rates worse for under-25s. The regime has ruthlessly crushed opposition protests. Unlike other oil-rich states in the Middle East, regime change might actually improve oil market conditions. Years of sanctions and low investments have hampered the country's ability to fully exploit new reserves, which make up 10 per cent of world supply.
Oil production: Normally 1.8 million barrels a day. Reserves: 47 billion barrels
The shutdown of Libya's oil fields in the wake of the nationwide uprising has triggered a global price shock. Estimates of how much oil has been removed from the market so far vary, but it could be as much as 1.2 million barrels a day. The prospect of further bloodshed and perhaps civil war is likely to keep the taps shut off for a long time, now that all the foreign technicians have departed. Libya lacks the expertise to keep the oil flowing without them. This is a critical problem for big Europe consumers, because Libya is a major supplier of the light, sweet crude that is used by European refineries for diesel fuel, which is already in short supply. The Saudis have vowed to make up the shortfall. But while Libyan oil produces close to 80 litres of diesel per barrel, Saudi replacement crude would produce at most about 30 litres. Whatever the political outcome in Libya, it could be years before production returns to anything approaching normal.
Oil production: 2.2 million barrels a day. Reserves: 37.5 billion barrels.
While the world focuses on North Africa, this top 10 world producer and major U.S. supplier remains a serious trouble spot. Upcoming elections in the spring are likely to trigger outbreaks of violence, which may well affect output. Oil means everything, accounting for 95 per cent of the country's foreign exchange earnings and 80 per cent of government revenue. Oil wealth is used as a lubricant to keep fractious ethnic groups in line. Money, in the form of transfer payments, flows to the poor, mainly Muslim, northern provinces. In the south, a large, service-based economy has been built around the industry. And in the Delta region, where the oil is produced, armed militants have waged a lengthy campaign against government forces, foreign operations and local infrastructure projects to keep more of the profits in their area. The result has been sporadic cuts in production, which is now about 30 per cent below peak levels. The country itself remains hobbled by political instability, corruption and bad economic stewardship.
Oil production: 2.1 million barrels a day. Reserves: 13.4 billion barrels.
Many analysts see this as the next likely domino. It shares a lot of features with the likes of Egypt and Tunisia, including an unpopular, military-backed government and deep economic woes. President Abdelaziz Bouteflika took office in a 1999 election that was widely seen as fraudulent. He has since removed term limits to remain in power. The country suffers from high unemployment, housing shortages, poor basic infrastructure and chronic corruption. The environment has made it ripe for Islamic militants, including an al-Qaeda splinter group that has led a series of attacks and kidnappings against the government and Western interests.
Oil production: 10.1 million barrels a day. Reserves: 74.2 billion barrels
The world's largest oil producer. Wearing his statesman's hat, Prime Minister Vladimir Putin has warned that high and rising prices are a threat to the global economy, which is not in Russia's interests. But in the past, Mr. Putin has readily used his country's energy clout for blatant political purposes, twice cutting off natural gas shipments to a heavily dependent Ukraine ... in the middle of winter. So far, Russia has promised to increase natural gas exports to the European Union to cover any shortfall from lost production in Libya and elsewhere. But Western European countries have expressed worries about becoming too dependent on a fickle Russia to meet future energy needs. On the plus side, the government is pouring capital into the sector to improve technology and boost production.
Oil production: 2.4 million barrels a day. Reserves: 115 billion barrels.
Oil export earnings are finally back to where they were before the U.S.-led invasion. But the country's economy and political situation remain shaky. Instability has so far limited the flow of foreign capital needed to develop vast untapped reserves. But the potential for greatly increased production remains. Perhaps the biggest threat stems from its volatile and ambitious neighbour, Iran.
Oil production: 2.5 million barrels a day. Reserves: 104 billion barrels.
The Persian Gulf state has already faced demonstrations, and, like the UAE, has moved to buy peace with government handouts. Last weekend, hundreds of protesters demanding greater rights for expatriate workers and other non-citizens clashed with security forces. Kuwait has struggled for years about what to do with the non-citizens that do much of the labour in the country. There has also been political paralysis between the elected National Assembly and the ruling al-Sabah family over allegations of corruption.
UNITED ARAB EMIRATES
Oil production: 2.8 million barrels a day. Reserves: 98 billion barrels
As in many of the small Gulf states, citizens are outnumbered by expatriate workers. Its moderate foreign policy has made it a friend of the West. But there's no democracy and the regime keeps a lid on dissent with generous subsidies, including free education, health care and various financial subsidies. Dwindling oil reserves threaten the regime's longer-term ability to maintain its generous nanny state.
Oil production: 1.9 million barrels a day. Reserves: 13.5 billion barrels.
Angola has enjoyed relative stability since its bloody 27-year civil war ended in 2002. But the country still suffers from an overreliance on oil, poor infrastructure and uneven wealth distribution. President Jose Eduardo Dos Santos promised elections in 2009, but reneged and now plans to hold them in 2012.
Oil production: 1.2 million barrels a day. Reserves: 25.4 billion barrels.
The country is probably far too oil-rich to experience any serious upheavals. It ranks second, behind only Liechtenstein globally, in per capita income, and unemployment is low. In addition to large oil reserves, Qatar also boasts large untapped natural gas reserves. Its main focus these days is on attracting more foreign investment and private capital as it builds the stadiums, hotels and other facilities needed for the 2022 World Cup of soccer. The government has opened the question to the public for debate of whether the tournament should be held in scorching summer or more moderate winter.
Oil production: 816,000 barrels a day. Reserves: 5.5 billion barrels
The world almost never hears from tiny Oman. And from a risk assessment perspective, that's a good thing. And yet the country, which counts Saudi Arabia and deeply troubled Yemen as neighbours, recently saw small and peaceful demonstrations of its own. Protesters called for political reform, including the resignation of several government ministers. But they pledged loyalty to the hereditary monarch, Sultan Qaboos bin-Said. The country is another of the regal welfare states, where citizens pay virtually no taxes and are cared for by the government. If there is a danger here, it is that Oman tilts toward Iran in any realignment of Middle East power.
Oil production: 680,000 barrels a day. Reserves: 4.3 billion barrels
For now, the army is firmly in control. But Egypt is likely to remain unstable until it becomes clear who will fill the political power vacuum left in the wake of President Hosni Mubarak's ouster. Egypt consumes most of the oil it produces. So it isn't a player in world markets. But its control of the Suez Canal, a key oil trade route, and its large Arab population put it at the centre of oil geopolitics. Any hint of a hard-line Islamist government coming to power would roil world markets.
Oil production: One million barrels a day. Reserves: 4 billion barrels
This nascent democracy is a minor world player in oil. And while it has been a target of terrorist attacks in the past, a 2006 peace agreement with armed separatists in Aceh province has greatly reduced the threat of instability. The country still struggles with poverty, unemployment, inadequate infrastructure and corruption. But its economy is among the fastest-growing in the emerging world.
Oil production: 2.4 million barrels a day. Reserves: 99.4 billion barrels
President Hugo Chavez has never hidden his antipathy toward Washington. Nor, despite frequent threats, has he ever moved to cut off the flow of oil, by far the biggest source of capital for his deficit-ridden government. Oil money supplied 35 per cent of government revenue in 2009, down from just under 50 per cent the previous year, when prices were higher. The risk is that Mr. Chavez's actions to strip foreign control and siphon off more revenues from the oil sector will further crimp production and exports. In 2002, Mr. Chavez fired about 18,000 workers at the national oil company, after a strike in response to his efforts to gain more control over operations. The resulting loss of homegrown technical expertise remains a problem.
Oil production: 1.5 million barrels a day. Reserves: 30 billion barrels
This is an oil-dependent economy. The government has sought to diversify its export markets to reduce reliance on Russia, its former master. It has also provoked clashes with Western oil companies over the terms of production agreements.
Oil production: 2.6 million barrels a day, Reserves: 12.4 billion barrels
A never-ending war on drug cartels - accompanied by escalating violence and brutal attacks on government officials - has not yet posed a risk to the country's oil sector. But reforms, including reducing the monopoly hold of the national oil company, Pemex, on exploration and drilling, are needed to boost production, which declined by nearly 25 per cent from 2004 to 2009 and has only recently stabilized.
Oil production: 2.6 million barrels a day. Reserves: 13.2 billion barrels
This is one of the dazzling growth stories in the emerging world, and it doesn't hurt that the country is sitting on vast energy reserves. The state oil company, Petrobras, runs the biggest exploration and production budget this side of the Persian Gulf. And unlike smaller state companies in many other oil countries, it has the expertise to go toe to toe with the private sector heavyweights of global oil. Its biggest problem: building enough refining capacity to avoid becoming dependent on imports to meet burgeoning domestic demand. A less likely risk would be the kind of heavy-handed political interference that has done severe damage to Venezuela's industry and left Iran's in such poor shape that production is steadily declining.
Oil production: 486,000 barrels a day. Reserves: 6.5 billion barrels
Along with the likes of Russia, Venezuela and the Caspian states, an activist government has raised its nationalist flag over its oil resources. In 2006, the government seized the operations of Occidental Petroleum after accusing the U.S. company of despoiling the environment and engaging in espionage. And earlier this month, an Ecuadorean judge ordered Chevron to fork over $8.6-billion in environmental damages over drilling in the 1980s by a company Chevron later acquired. The risks of asset seizures and outsized damage awards are nothing new to the oil business. But they can definitely throw a spanner into new developments. The country faces some 15 lawsuits from foreign companies over asset seizures and other alleged violations of contracts and treaties.
Oil production: 1.01 million barrels a day. Reserves: 7 billion barrels
Not many former oil executives end up running the entire country. But that's how closely oil and politics are intertwined in this former Soviet republic. President Ilham Aliyev, who succeeded his father to the country's helm, was briefly a vice-president of the state oil company and has written papers on the geopolitics of his country's oil strategy. This has helped him in his dealings with competing companies. But it hasn't translated into competent stewardship of a stumbling economy that is riddled with inefficiencies and infected by chronic corruption. As a result, the risk of social unrest runs high.