Libyan rebelsAs turmoil grips the Middle East, it's the "oil" part that Wall Street is worrying most about.

Soaring oil prices have been taking a toll on stocks as violence escalates in Libya. Some of the concern is well justified. Libya, after all, is a midsize player on the world oil stage, and as signs of unrest spread to Bahrain and Saudi Arabia, it's understandable that some investors are heading for the sidelines.

But there's no shortage of hype and fear-mongering, either. Predictions that oil might hit $220 a barrel by investment bank Nomura, for example, lead individuals to quickly jump to doomsday scenarios.

What to Keep in Mind


Savvy investors, though, should take a more balanced approach. The deterioration of Libya is far more troubling than the ouster of Hosni Mubarak in Egypt, and oil prices may remain justifiably elevated as a result. But also note that Saudi Arabia's pledges to pump more oil to compensate for Libya make the chances of cataclysmic spikes more remote.

Here's another key point to keep in mind: While higher energy prices will restrain overall global growth, they could hurt emerging markets far worse than the U.S. -- and that difference could also help boost demand for domestic stocks.

The most immediate concern is Libya. Plenty of blood has already been shed, and Libyan strongman Muammar Qaddafi has vowed to fight to the bitter end. Still, his grip on power appears to be waning, and a TV appearance Thursday seemed to strike a slightly more conciliatory tone.

A huge trouble yet to come is coping with the power vacuum that would emerge if Qadaffi were to be deposed, given the central role that tribal alliances play in the country.

"Tribal support is a key element that will decide both Qadhafi's fate and possible outcomes of the ongoing uprising -- and currently the role of many tribes remains ambiguous," analysts at political risk consultancy Eurasia Group wrote in a note to clients this week. "The tribal element directly impacts the loyalty of the armed forces, and Qadhafi remains very skilled at exploiting the fragmented tribal system that dominates Libyan society."

Who Suffers More?

Qadaffi's ouster, in other words, wouldn't be the end of Libya's problems but the start of a new set.

Among those problems will be the continued fallout for oil markets and higher energy costs on economic growth. Analysts at investment bank Merrill Lynch recently noted that emerging-market energy importers like India, China, Korea and Indonesia are particularly vulnerable to spiking energy costs.

But the post-industrial U.S. economy has actually grown less energy-intensive over time. And the energy sector itself now represents just 5.4% of U.S. GDP compared to 10.6% in 1980, the analysts note.

The U.S. also has cheap and abundant natural-gas resources to soften the low of higher oil costs, especially for power generation and industrial uses.

All of this bodes well for the relative attractiveness of a U.S. economy that continues to deliver better-than-expected data.

Adding to a Tailwind

Recall that not long ago, the "new normal" scenario that was taken as gospel on Wall Street held that investors would have to flock overseas to find growth as the U.S. looked at years of malaise. That scenario has proven to be vastly overblown.

But higher oil prices and a renewed premium on safety could add another tailwind to the growing enthusiasm for U.S. investments already under way. Corporate profits continue to boom, and cash-rich companies are returning capital to investors via buybacks in a sign of business confidence. The chances are now rising that this capital will get redeployed in the U.S. given the rising tensions overseas.

There's plenty of paranoia about what oil prices blasting higher would mean for the U.S. economy. But investors shouldn't overlook the good possibility that elevated prices would also have a silver lining for U.S. financial markets.

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todfrapri

Speculators are so leveed right now a $10 drop in the price of Oil could cost these guys Billions in MArgins that need to be called in...... I say do everything you can do to reign in the speculators. and watch the price of Oil not only drop $10 but $30 or more.

March 09 2011 at 12:50 PM Report abuse +1 rate up rate down Reply
rightakl36

It's appalling that this (rather incoherent) article suggests readers can make money from the consequences of other people's heartbreak, injury, and death - and ultimately from the courage of those standing up to some of our notorious thug-allies (Mubarak, Qadhafi) & trying to achieve something good in this troubled and oppressed part of the world.

I say give all of these benighted "investors" an M16 and some ammo, and a Bible, and send them to Iraq or Afghanistan, or to the waters off Somalia, or to Libya, and let them try to grow a pair. I'd much rather risk losing one of you than one of America's soldiers.
A vet who cares....

March 03 2011 at 1:22 PM Report abuse rate up rate down Reply
lisak1960

I'm glad we don't get as much government as we pay for. I can't stand any more government help. They took my best employee by raising my taxes and offering her more money to do less. America, wake up. Our government is too big and getting bigger and more oppressive.

February 26 2011 at 4:20 AM Report abuse rate up rate down Reply
Robert & Lisa

Our socialist public educational system has indoctrinated our children into believing capitalism and freedom is bad and socialism is good. If Socialism is so good, why does the long time socialist government of Mexico boast of being the #1 producer of silver, plenty of oil, and the richest man in the world, yet 99% of their people are in the poverty level making an average of less than 6 dollars a day. Corruption is rampant. The evil, ultra rich see Mexico and want to implement socialism here, where they can have all of the wealth and power and the middle class will now be among the poor. That is what their Demoncrat puppets in the white house and senate are doing to us.

February 26 2011 at 3:42 AM Report abuse +4 rate up rate down Reply
Robert & Lisa

The only thing that will make our markets look better is kicking the progessive socialists in Washington out.

February 26 2011 at 3:42 AM Report abuse +4 rate up rate down Reply
wurkinman1

Hey anything can make US markets look better !! R U kidding me

February 25 2011 at 9:55 PM Report abuse rate up rate down Reply
bdmb4

The last gas crisis under Carter the Dept. of Energy was created . Its pupose to develope a plan to become independent of Mid-East oil so we would never have a crisis again. The government did another good job there. Especially under Obama.

February 25 2011 at 6:05 PM Report abuse +3 rate up rate down Reply
2 replies to bdmb4's comment
lisak1960

I'm glad we get less government than we pay for. I can't use any more government help. They take my best employees by raising my taxes and offering them more money to do less. America, wake up. Our government is too big and getting bigger and more oppressive.

February 26 2011 at 4:16 AM Report abuse rate up rate down Reply
ajgorm

All I can say is they did a good job ruining this country.

February 25 2011 at 2:16 PM Report abuse +1 rate up rate down Reply
TOM

I think the neo-kahns and the rest of the tribe think they can hole up in some green zones and rule the rest of the global plantation, like Orwells book 1984 constant wars , changing from day to day.. One day EAST ASIA+OCEANIA against EURASIA, next day its reverse order and so on and on. The masses get the televitz and victory gin, and daily hates.

February 25 2011 at 10:20 AM Report abuse rate up rate down Reply
1 reply to TOM's comment
TOM

There you have it folks, the route our bought and paid for government , politicians, and neo-kahn advisors have planned for a long long time. Do nothing about our own mess, but look how the super crapitalists and arms merchants can profit from the mess somewhere else.

War is a racket for the super rich, neo-kahns, and its like they say the first fatality of war , is the truth. You actually believe this stuff, about how China and India could be hurt economically and we could come out smellin' like a rose?

February 25 2011 at 10:10 AM Report abuse -1 rate up rate down Reply