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It has taken two months for the contagion that began with the immolation of a fruit seller in Tunisia to reach the first significant oil producing nation.

As oil production in Libya grinds to a halt and Muammar Gadhafi clings to power amidst increasing turmoil, it is beginning to look as if it may be sometime before Tripoli resumes its normal oil exports. While the 1.6 million barrels a day (b/d) that the Libyans pumped in January may not appear significant in a world that produces some 88 million barrels each day, we should remember that those barrels are being consumed somewhere in a world where they are consumed just as fast as they are produced. If there is anything that we have learned in the last 40 years, it is that relatively small disruptions in oil production can lead to relatively large increases in oil prices.

OPEC, the International Energy Agency, and the Saudi oil minister are already rushing to reassure us that we have nothing to fear. The OECD has reserve stockpiles totaling 1.6 billion barrels of oil and OPEC is forever reminding us about the six million b/d of spare oil production capacity that they claim can be turned on as soon as it becomes necessary. This of course would be nice if the upheaval in Libya was going to be the only problem, but it isn't. There are at least half a dozen major Middle East oil exporters with large numbers of digitally-connected underemployed youths and are run by heredity or less-than-democratic corrupt governments. In recent days we have seen flavors of the "Tunisian contagion" erupt in Algeria, Kuwait, Iran, and Iraq which are indeed very significant oil exporters. The upheaval in Bahrain, not a major exporter, has even had a, so far minor, reflection in the Shiite portions of Saudi Arabia with its 8 and maybe 10 or 12 million b/d of oil production. This week the King of Saudi Arabia announced $35 billion worth of government aid to the poorest of his subjects suggesting that someone in Riyadh is getting nervous.

The conditions that created the current upheavals can only worsen. Rising oil prices are bound to stifle tourism and foreign investment in the Middle East and a looming global food shortage seems likely to make life even tougher for the growing ranks of un- or underemployed poor. Governments that have massive oil revenues can afford to buy, or try to buy, the acquiescence of their peoples, but adequate food supplies could turn out to be a different matter. As we saw with Russia last summer, massive crop failures can easily shut down food exports as governments become more concerned about domestic food riots than the wellbeing of other countries. The bottom line is that it seems likely we shall be seeing disruptions, perhaps serious ones, in other oil producing states in the not too distant future.

The conditions that created the current upheavals can only worsen.

Those closely watching the balance between worldwide oil supply and demand are well aware that getting the global economy through the next 18 months without a major oil price spike depends largely on two factors. First is a significant drop in the rate of increase in China's demand for oil which has been growing unusually quickly in the last six months. Second is the existence of OPEC's spare production capacity which will have to come into play to prevent shortages from developing. While the IEA currently puts this spare capacity at 4.7 million b/d, and the Saudis alone insist they can pump another four million b/d, other observers say this figure is likely to be too optimistic. No country, not even the Saudis, can or would want to pump up and sell its last possible barrel for long. Some well-informed observers believe that the Saudi's effective spare capacity may be more on the order to two million b/d provided they decide to produce it.

Add the loss of all or a major portion of Libyan oil production for an unknown period and the likely more-than-forecasted increase in Chinese demand, to the possibility that the Saudis will never produce much more than 10 million b/d, and the world is in for some real problems. To avoid shortages, the price of oil will be moving significantly higher. This week we have already seen oil trade in London at $108 a barrel and analysts are already talking about oil moving beyond the $147 all-time nominal peak set three years ago - a notion that was widely rejected four weeks ago. Should oil get back in the vicinity of $150 or beyond later this year, recent history tells us that a violent reaction is likely to set in. Given the fragility of the US and other OECD economies, the demand for oil is likely to drop sharply and with it will fall much economic activity fostered by people moving around in cars and planes or spending discretionary money.

The question of the day, however, is whether or not the current political upheavals will come to be recognized as a major turning point in the history of the oil age. There is no question that the loss of Libyan production, if prolonged, will accelerate the day when global oil production begins its final decline towards the end of the oil age. However, the optimistic case holds that any outage of Libyan production will be of short duration and the upheavals will not spread to other oil exporting countries. If this should be true much higher oil prices could be delayed for a year or two. The pessimistic case says that the Libyan outage will continue for a while; will not be replaced by a rapid increase in Saudi exports; additional shortages will develop if other oil exporters have significant domestic problems: and the current price increases continue steadily until the global economy falters. If this should occur the Tunisian contagion really was an inflection point in world history.