Oil prices could shoot up to $200 a barrel if unrest in Libya escalates into a civil war or into a regional cross-border conflict, says Harvard historian Niall Ferguson.
"If we have a continuation of what is going on right now in Libya, of civil war, or potential cross border conflicts in the region … then we're going to see oil soaring skywards, nearer to $200 a barrel than $100," Ferguson tells The Telegraph.
"That would be as big a kick to the U.S. economy as well as to the rest of the world's economy as anything that happened in the 1970s."
The world should also not expect modern democracies to replace ousted despots in Libya and elsewhere in the Middle East, Ferguson adds.
"The least likely outcome of these events is that a large part of North Africa and the Middle East will become western-style democracies. A much more likely outcome, in my view, is that we will see either the restoration of military rule in these countries, or civil war or conceivably an Islamist takeover via the ballot box or via the use of force."
Over the weekend, supporters and opponents of Libyan leader Moammar Gadhafi fought in several cities, heightening fears that the country is headed for a protracted conflict. Libya's oil output has fallen by at least 1 million barrels per day from 1.6 million since the uprising began last month.
Investors also are concerned violent protests and political upheaval could intensify in the Middle East, where Iran, Iraq, the United Arab Emirates, Kuwait, Bahrain, Qatar, Oman and Saudi Arabia have more than 60 percent of the world's proven oil reserves.
"It is essentially the fear of the unrest spreading across the entire region which is pushing oil prices up," said Commerzbank in Frankfurt.
"Northern Africa and the Middle East produce more than one-third of the global supply of crude oil."
Citigroup said it raised its 2011 average forecast for Brent crude to $105 from $90, but doesn't expect the violent protests in North Africa and the Middle East to spread to Saudi Arabia, the world's largest oil exporter, the Associated Press reported.
"We assume that output disruption is maintained through the second quarter," Citigroup said in a report. "Output disruption, or at least the threat of, will support a fear premium for the rest of 2011."
Some analysts expect the recent jump in oil prices — up 26 percent since Feb. 15 — will only have a negligible impact on inflation and economic growth in the U.S., the world's largest oil consumer.
"Oil above $100 will not send the economy back into a recession," Capital Economics said in a report. "The oil price would have to rise much further to seriously threaten the U.S. economy."
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