Libyan protestersWhen the social unrest sweeping the Arab world initially jumped from Tunisia to Egypt, it elicited plenty of undue pessimism. While many commentators feared that radical elements were taking over, the end of Hosni Mubarak's dictatorship in Egypt is instead likely to set the stage for more moderation and progress in the country.

But the region's turmoil may now be reaching a tipping point. Deadly violence is engulfing Libya, where Muammar Gaddafi's regime is using extreme force against protesters, and major pressures are being felt in Iran, Bahrain, Yemen and even China. In the long run, the hope is that the changes being ushered in may prove to be a cornerstone of further global economic growth and political stability.

More immediately, though, the uprisings are likely to create exactly the type of uncertainty that investors dread. And a U.S. stock market that has been moving steadily higher could finally see its momentum broken as a result.

Chaos Before Resolutions

Doomsayers are out in full force when it comes to analyzing the unfolding event across the Mideast. But the driving forces -- a younger generation seeking more freedom and opportunity -- offer plenty of reason for optimism over the long haul. About 60% of the Mideast's population is under 30, and a recent survey of youth in nine Mideast countries found their top wish is a desire to live in a free country.

The long-standing tensions in the region -- clearly one of the thorniest problems in geopolitics -- may eventually be resolved constructively, thanks to a new generation. But the process will be packed with plenty of chaos first. And while the immediate consequences for financial markets were relatively subdued with Egypt, the battles now engulfing Libya will have far more impact.

Unlike Egypt, Libya is a sizable player in world oil markets. The country produces 1.8 million barrels of crude oil per day, 90% of which is exported, analysts at global intelligence firm Stratfor wrote in a note to clients. That amounts to more than 20% of the 8.4 million barrels per day for Saudi Arabia, the world's biggest oil producer.

Rising oil prices act like a growth-dampening tax on the global economy. And crude rose sharply on global markets Monday amid prospects of less supply coming out of Libya. The March futures contract spiked up more than 6%, closing above $91 a barrel.

Adding to Uncertainty


But tensions are mounting in unexpected ways that go beyond mere supply and demand. Iranian warships are poised to enter the Suez Canal in a move that would be seen as a provocation by Israel. As the hard-line Iranian regime sees protests swelling at home, its motivations are fairly easy to understand: Brinkmanship could help deflect attention away from domestic repression and stoke nationalist sentiment, particularly in the more conservative countryside.

That will only add to the uncertainty even if the move isn't as belligerent as it seems on the surface.

The stress is being felt as far away as China, where authorities are rushing to quell demonstrations in the Communist-led nation before they spiral out of control. Protesters inspired by events in the Middle East are clamoring for more openness and progress at home. But Beijing's authoritarian regime is clamping down on Internet access and mobile devices to try to maintain order.

Warm sentiments aside, investors should keep in mind just how precarious a situation China is in. The country walks a tightrope that attempts to use red-hot growth to deal with massive urbanization as people migrate from China's rural areas in search of employment.

Wildcards Raise the Risks

Close economic coordination that ranges from an export sector with razor-thin margins to a managed currency is required to keep that economic engine going. While Chinese officials have managed an impressive juggling act so far, wildcards like a sudden domestic push for openness add to the risks.

The social turmoil unfolding around the globe may eventually create a safer and more prosperous world. With that day a long way off, however, investors can't be blamed for heading to the sidelines as things shake out.

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26 Comments

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mikersales

People might do well to look at US oil companies that have signifcant production within the US and/or "stable" countries, i.e. Oxy, Marathon, etc.

February 22 2011 at 5:44 PM Report abuse rate up rate down Reply
bhawkes328

I SURE WISH I COULD FIGURE OUT HOW THE STATE DEPARTMENT AND GOOGLE GOT ALL THAT STARTED IN THE MIDDLE EAST....WAR IS COMEING

February 22 2011 at 4:24 PM Report abuse rate up rate down Reply
dray907023

THE WHOLE RECOVERY IS NOTHING MORE THAN THE ROB PETER TO PAY PAY PAUL SCHOOL OF ECONOMICS .

February 22 2011 at 1:59 PM Report abuse rate up rate down Reply
ksmwtm

The Domino Effect from Iraq, Egypt, Libbia, etc. has elevated the global UN-rest Issue, by having---even a few---Chinese suggest there may be backbone to the very poor & those hoping for middle class entry. Civil UN-rest in China may cause a flight to the USA, BUT, NOT dealing with the Great Fraud highlighted by CDSs in the US is a Far GREATER THREAT to USA Citizens wealth!

February 22 2011 at 10:55 AM Report abuse +4 rate up rate down Reply
mydnytrydr

When the bubble finally bursts, it's gonna be a "Duesey" .. ... ....

February 22 2011 at 10:27 AM Report abuse +7 rate up rate down Reply
Tim

What I have never been able to understand is that gasoline pricing always seems to instantly spike at the hint of volatility yet declines rather slowly on downward pressures. I understand that the market drivers dictate an overall, long-term upward trend, but it seems to be more of a money grab by the gas companies and hints of manipulation as opposed to sole market influences.

Anyone have a solid explanation?

February 22 2011 at 9:21 AM Report abuse +8 rate up rate down Reply
1 reply to Tim's comment
ksmwtm

Free market---no, no, I mean Monopoly.

February 22 2011 at 10:58 AM Report abuse +2 rate up rate down Reply
sjoberdix

There might be turmoil and unrest going on, but wallstreet is dreaming if you think investors are going to flock in our market. Thats the consequence of globalizing you all are going down together. When you lose crediblity theres no trust, people are fast to learn when cheated. Boy, have we ever ben. No amount of bribes, I mean campaign contributions can change that. plus all these countries that are having the unrest are our goverments friends. They going to out of friends real fast.

February 22 2011 at 4:32 AM Report abuse +6 rate up rate down Reply
1 reply to sjoberdix's comment
Tim

To me, a brief cool off in this environment is a perfect buy opportunity.

February 22 2011 at 9:23 AM Report abuse -3 rate up rate down Reply
sgentilejr

To: Vishesh Kumar,
Sorry Vishesh but I think your overlooking some key factor. All of the turmoil, unrest and chaos around the globe makes the USA a better and safer place to invest. Wise investors from around the globe could flock to USA investments for Safety. Chaos around the Globe also helps to keep the value of the US dollar higher. Vishesh think. If you were a wealthy Egyptian or Libian would you leave you money there when the value of their currencies is falling fast__or would you seek stability elsewhere? If you ran a USA Corporation would you invest in China and open a new factory there___with unrest brewing there?
The unrest around the Globe makes our nation and our stock markets look like a stronger and safer to invest than before.
Just as the crop destruction brought about by droughts in Russia and China and flooding and cyclones in Australia help to make our farm exports more valuable than before.
Also, the chaos in the Middle East and Africa also helps to make the USA
a far better and safer place for oil companies to invest in drilling new oil wells and in the process create tens of thousands of decent paying USA jobs.

February 22 2011 at 3:49 AM Report abuse +3 rate up rate down Reply
NAlexanna2

The worst thing you can do is over react to the hype and hysteria of the media
and frenzied investors. That's the perfect way to lose a ton of cash. Always
make calm decisions based on your intellect and not "knee-Jerk" reactions.
the problems of the world will always be there-get used to it. Don't sell
low frantically and play into these head game players hands. Hold and wait it
out.

February 22 2011 at 12:58 AM Report abuse +1 rate up rate down Reply
Laura

I'm sorry, but stories like this have always been responsible for jumps in oil prices. The local gas stations hate people like me who will only buy gas as needed, and never just fill er up.

February 22 2011 at 12:25 AM Report abuse +4 rate up rate down Reply
2 replies to Laura's comment
pozboys

Wise up fool! There are thousands of people, if not millions, who will buy the gas you are not buying! The jumps in prices have nothing to do with consumption, it is speculation in the markets, that drive prices! Quit thinking you are so important, as if you make a difference to these billionares!!

February 22 2011 at 2:06 PM Report abuse -1 rate up rate down Reply
madmax821

pozboy It does and will make a different! If gas is 5 buck a gallon people will drive less, and those billionares can sit on all there oil fool!

February 22 2011 at 2:16 PM Report abuse +1 rate up rate down Reply