Beyond that, much would depend on the durability of the price spike and on the policy responses. If the recent jump proved short-lived, the economic effect would be reversed. Among important questions is how far such unrest affects other producers, particularly Saudi Arabia. For now, the latter can replace lost Libyan production: Libya’s output – some 2 per cent of the world’s total – is less than Saudi Arabia’s excess capacity. Moreover, any reduction in output even in directly affected countries should be brief, provided capacity is undamaged: governments of oil exporting countries want revenues. Democratic governments might need the revenues more than despots.
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