As turmoil has engulfed the Middle East and North Africa, much attention has focused on Saudi Arabia -- if trouble spread there, traders have worried, the global economy could dive into a far more serious recession than the 2008 financial collapse. Nawaf Obaid, a senior fellow at the King Faisal Center for Research and Islamic Studies and a doctoral candidate at King's College London's Department of War Studies on the subject of the rise of Saudi nationalism, thinks the fears are overblown. He kindly agreed to write a guest column, which follows.

Reports in recent weeks have suggested that the mass protests occurring in Arab nations will soon spread to Saudi Arabia. There has been coverage of Facebook pages established by activists calling for a "day of rage," and a "day of revolution." Large, front page articles, illustrated with pictures and charts, have asserted that it is only a matter of time before massive upheavals will bring down the Saudi monarchy. The BBC has reported that the Saudi downfall is inevitable, and weighing heavily on global energy markets, where a fear premium had added 15 percent to the price of oil.

These assertions have been grossly exaggerated:  17,000 Facebook fans or "protesters" do not necessarily translate into 17,000 Saudi rioters, because at the very least it is impossible to verify how many of them actually lived in theKingdom.  One cannot forecast events based on a count of virtual fans at a social network.

In this case, the outcome is a dangerous, long-term yet illusory perception: the vulnerability of Saudi Arabia's energy infrastructure.

The logic of this narrative is there:  Saudi Arabia holds 25 percent of the world's proven oil reserves, is the largest exporter of oil, is the only nation with significant spare capacity (almost 4 million barrels of oil a day), and is the leading power and sole swing producer in OPEC.  A disruption in Saudi oil exports would create what can best be described as a global economic catastrophe. Unlike in the case of the disruption of Libyan exports, in which Plan B is for Saudi Arabia to increase its exports to steady the markets, there is no Plan B if Saudi Arabia goes off line. Because the kingdom possesses about 75 percent of the world's spare capacity -- all of which would now vanish -- oil would probably soar to $200-$300 per barrel in such a scenario. The effects this would have on economies around the world would be devastating. Stock markets would crash as mega non-energy multinational companies would see their energy costs soar, and their market cap valuations drop.  The entire transportation sector would go bankrupt. Wall Street would be the most affected -- it would require federal government bailouts that would dwarf those made just a few years ago. The nascent U.S. recovery would grind to a halt, as every extra cent paid at the pump would pull about $1 billion from motorists' pockets per year. The sudden, exorbitant rise in the cost of practically every commodity would cripple global trade.

But this nightmare scenario is extremely unlikely. No system as vast as the Saudi oil complex -- with its scores of rigs, refineries,export terminals and pipelines -- is perfectly protected. But the risks aremuch less serious than widely disseminated.

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The oil balance is back on precarious footing. The shift of events in Yemen -- President Ali Abdullah Saleh seems to be spending his final hours or days in office (see defectors above) -- returns instability to Saudi Arabia's doorstep, and with it may push oil prices higher.

It's not that Yemen itself produces much oil or natural gas - its production volumes are modest. But its northern border with Saudi is porous, and as we've discussed previously, any flow of Yemeni refugees, including armed ones, could destabilize Saudi Arabia. To the east of the kingdom, Saudi forces are helping to tamp down unrest in neighboring Bahrain, but meanwhile face new protests from sympathetic fellow Shias in the city of Qatif, in Saudi's oil-rich Eastern Province. All of this will tempt the trigger fingers of intrepid traders in London and New York.

Oil prices have been relatively calm considering the upheavals in Tunisia, Egypt, Libya, Bahrain and Yemen, not to mention the nuclear crisis in Japan, moving up and down just a few dollars when traders decide they'd like to earn a little money. When prices have moved the most, it has been with an eye on Saudi Arabia, whose massive oil reserves and production underpin global price stability.

With his own eye on the same matter of potential unrest at home, Saudi King Abdullah has added another $93 billion to the previous $36 billion in largesse he laid on his people in order to keep them off the streets. My colleague Jim Traub thinks this is all for nought -- that such regimes are inherently unstable and that, in terms of U.S. policy, it's always a mistake to back them because, for one thing, it puts Americans on the wrong side of history. What Jim omits is that, even if he is right, the self-correction that he is suggesting predictably happens -- if history is any teacher -- would almost always come after many, many decades. Does he suggest the United States having antagonistic relations for the time being and waiting patiently for that day of reckoning before attending to U.S. commercial and other interests? Of course Washington can't. Which is what argues for the current course of dealing with who is in power, making it clear in subtle and explicit ways where Washington stands, and -- short of sending in the cavalry itself -- embracing a population's empowerment when and if it comes.

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As O&G readers know, I've been in Houston at CERA Week -- the Davos of the energy industry, hosted by oil historian Daniel Yergin -- for the past five days. So in today's wrap, the highlights of the conference:

Emergencies drive the market: The news over the last 24 hours punctuated the general message of CERA Week: Bad economic news sent oil prices down, unrest in Saudi Arabia's oil-rich Eastern Province pushed them back up, then the 8.9 magnitude earthquake off Japan's coastline pushed them back below $100 a barrel. Finally, the oil price settled just a bit down, just over $100. The message: the market is incredibly jittery, and is holding pretty close to $100 a barrel regardless of the news.

As oil analyst Ed Morse told me, oil was probably overvalued prior to the Middle East unrest. But the turmoil there has fundamentally changed the political calculus, and with it the oil market for around the next decade and perhaps longer. A risk premium is going to remain in the price, especially since real trouble struck Saudi Arabia yesterday, as I wrote. So gasoline prices, too, are going to stay relatively high (that's a Paris gas station pictured above). All in all, as Christophe de Margerie, the CEO of France's Total, said, the oil industry is in a serious fix.

But what's notable is how muted the response has been in the market. Step back and look at the absolute price movements so far since the turmoil in the Arab world began. If we had just one of these events back in the spare-capacity-short year of 2008,we would have seen huge price movements -- $10 and $20 a barrel. Instead, we are getting shifts of two or three dollars one way or the other. One reason is that there is global surplus production capacity of 3 or 4 million barrels a day that can be brought to bear; another is that, in the short term, the United States and Japan can swamp any sudden oil shortage by releasing millions of barrels of oil from their strategic reserves. These petroleum reserves -- totaling 1.6 billion barrels around the world -- cannot create long-term price stability, because traders will always bet on spare capacity in an emergency. But they can smooth out the bumps.

The next emergencies? Where are the predictable next bumps? Today's planned Day of Rage in Saudi Arabia became, as the Washington Post called it, a day of rest, and we cannot foresee natural disasters. Yet, some are attempting to quantify what is possible. Among those is Bloomberg, which has ranked 20 possibly troubled countries in a Combustibility Index. Of those, 18 are in the Middle East, but interestingly none of the big oil producers top the list.

The five most combustible countries, in descending order, are Libya, Sudan, Yemen, Syria, and Egypt. The bottom five among these combustible states, again in descending order, are Saudi Arabia, Morocco, United Arab Emirates, Kuwait and Qatar.

For the quants among you, the biggest component in the Bloomberg equation is repression, which accounts for 50 percent of the weight of the variables. (To calculate that, among the factors are the size of a country's military per capita, how a ruler came to power -- whether by vote, coup or assassination -- plus how long the ruler has been in power, and whether the ruler came from the military.) The other 50 percent includes GDP adjusted for purchasing power parity, unemployment, median age, income inequality and access to information.

Electric car realities: Another takeaway from the conference is how technological advances are shifting the energy equation, and geopolitics along with them. Among the technological changes are in transportation. I spoke with two big players in the electric-car space: Britta Gross, director of global energy systems for General Motors, and Steven Koonin, the U.S. undersecretary of energy for science. Both of them described the multi-year realities of creating a plug-in hybrid and electric-car industry. Gross said that one reason the GM Volt is currently so expensive is the carmaker's strategy of creating a "wow" factor for buyers -- carving out a market by loading up the Volt with exciting gizmos. When the next generation of the Volt comes out -- perhaps in five years or so -- it may have a lot fewer such electronics, Gross said, which will much-reduce the sticker price. In addition, the cost of parts will probably be less because there may be more competition among suppliers. Here are Gross' remarks:

Koonin, looking at the market from the perspective of a government goal of reducing oil consumption, said that much will be gained by simple efficiencies: 25 percent less gasoline will be used when cars are lighter and engines more efficient. He said that years from now, plug-in hybrids will penetrate a much larger segment of the market and cut more oil consumption. No one is certain that advanced batteries will ever be good enough to make a purely electric car commercially competitive, he said, but the performance of hybrids may mean that they won't be necessary. Here are Koonin's remarks:

Possible Putin shift in pipeline politics: For much of the last decade, Russia and the West have fought a pipeline war in Europe. Russia has sought to tighten its natural gas supply grip on Europe -- Russia's Gazprom supplies about 30 percent of Europe's gas -- by building yet another big pipeline into the continent, called South Stream. The West, led by the United States, has offered up a rival pipeline, called Nabucco, that would carry gas from the Caspian Sea states of Azerbaijan and Turkmenistan into Europe, and hence reduce the continent's dependence on Russian gas. This may sound mighty arcane, but the combatants of pipeline politics treat the game quite seriously.

In any case, Russian Prime Minister Vladimir Putin yesterday added new confusion to the state of play. He suggested that Russia may not build the pipeline after all, but instead a liquefied natural gas terminal that would ship Russia's gas to Europe by tanker. In an interview today, South Stream pipeline director Marcel Kramer told me that he has received no new instructions, and that he is proceeding with his existing orders to make the $21 billion pipeline work. He is attempting to get a final investment decision on the pipeline by the middle of next year so that it can be built by the end of 2015. Here is a clip from our conversation:

Libya falls squarely into the central aim of this blog, which is to identify and follow the geopolitical impact of energy events. Libya is fundamentally an energy event. After decades of ostracism because of his terrorist attacks and links, Col. Moammar Qaddafi was re-embraced by the international community in 2003, led by the United Kingdom and the United States, for one primary reason -- he said he would open his oilfields to their companies. Oh, there was the renunciation of terror, too -- no trivial matter -- but then-British Prime Minister Tony Blair reversed Britain's stand on the Libyan-ordered Lockerbie airline bombing specifically to shoehorn BP, Britain's biggest company, into some monstrous new oilfields. The same went for the rest of Europe and the U.S., where ConocoPhillips, Hess and Occidental also got oil deals.

Eight years later, we observe the geopolitical impact in the spectacle of Qaddafi provoking an unnecessary civil war, and roiling world oil markets, all so he can continue his almost 42-year rule. The energy-geopolitical takeaway -- political and financial compromise with a certain class of petro-tyrant can rebound back on you profoundly, destabilize a region, and shake up economies, all while tarnishing you with the same brush. One also doesn't know if, in the end, the deals themselves will all hold up.

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The Saudis' power to calm: We all know by now that oil prices have soared not specifically because of Libya, but because traders are worried about what happens next. In particular, they are worried about Saudi Arabia -- whether it can truly step up to the plate with big volumes of oil to compensate for a shortfall elsewhere, even if it itself falls victim to the unrest roiling the Middle East. To be more precise, the question on many lips is: Will or will not the Saudis announce an increase in oil production in order to calm roiling global markets? I discuss this topic today on the Brian Lehrer Show at WNYC.

The answer is that they may already have quietly done so.The Oil Daily is reporting today that Saudi Arabia has lifted production to 9 million barrels a day, which if accurate would be about 4 percent, or 400,000 barrels a day, higher than its most recent reported volume. That's a serious uptick in production -- sufficient, one would think, to persuade traders that the kingdom in fact possesses the capacity and will to tamp down market volatility when it's called for. It should be sufficient to lower prices well into the low $90-a-barrel range. It should be, that is, if the Saudis actually tell the market that it has done so. Instead, the Saudis are going around simply asserting that they will step in as soon as they are truly needed.

Is this just the Saudis playing coy? No, writes the Oil Daily: "Saudi Arabia has been quiet about its output hike, most likely because of the political sensitivities in the region and the internal dynamics of OPEC, where members are expected to produce at target levels." In other words, if Saudi Arabia wishes to remain the uber-alpha male in OPEC, it must not be unilateral or bumptious, but navigate the shoals of the cartel with diplomacy.

Okay, I get that. But doesn't that defeat the purpose? If the market doesn't know that you've added the volumes -- which otherwise would be like apologizing to your wife for an egregious mistake by writing it on a piece of paper and putting it in your pocket -- why bother? I suppose there are just things about the Saudis that we are doomed never to grasp.

Speaking of Libya's impact, readers emailed me the nifty charts below. In the first chart, produced by the International Energy Agency, you can see that Ireland is the most exposed country in the world to Libya, which supplies almost a whopping quarter of its oil. Italy is next with about 22 percent reliance on Libya. Indeed, Europe in general is on the hook. As for the United States, it's relatively inoculated -- Libya satisfies just 2-3 percent of its demand.

In this chart, produced by the Russian news agency RIA Novosti, you can see Libya's export reliance. It by far sells the most of its oil to Italy -- almost a third of its export total. Ten percent of its oil goes to China, and 6 percent to the United States.

The fallacy about China's oil companies: One prevailing wisdom about China's global resource grab is that it's all a centrally devised plan. So that when China's oil companies hand out big loans to Brazil, Russia and Kazakhstan in exchange for oil supply and access to fields, they are effectively following Communist Party orders. Not so, says the Paris-based International Energy Agency.  In a new report, the IEA says that not only do the China National Petroleum Co., Sinopec and the rest operate autonomously and commercially, but they also have added volume to the world supply of oil and gas. Julie Jiang, who co-wrote the IEA report with Jonathan Sinton, said, "These are far from puppet companies operating under control of the Chinese government, as many have assumed. Their investments in recent years have been driven by a strong commercial interest, not the whim of the state." At the Wall Street Journal, James Areddy called the report "eye-catching."

Out one door, through two more: World power is shifting from west to east, and so is BP's portfolio of assets. Over the last month or so, the British company has announced $15 billion in operational tie-ups and share swaps with Russian and Indian oil companies, including a $7.2 billion deal this week with India's Reliance Industries, headed by Mukesh Ambani, one of the richest men in the world. At the same time, BP is reducing its foothold both in the United States and at home in the United Kingdom. All of this has followed BP's disastrous oil spill in the Gulf of Mexico last year. For BP, the strategy is a bet that, by gambling in Russia and India, it can increase its reserve base by about a third, to some 80 billion barrels of oil and natural gas, according to a Citibank estimate cited by the Financial Times.

Let's look at the bigger picture: Will Wall Street eversee BP the same again after the Gulf of Mexico, and bid up its share price astraders did for almost all the other major oil companies this week? Probably. Butit could be a long time. Production in Russia's Arctic region is a long way off -- perhaps a decade. So for now the value of these deals is largely notional.

Oil and gasoline prices -- currently continuing their rise through the roof -- are doing so in their role as a mirror on history. We will never look at the Middle East the same way again -- contrary to what we generally thought, the region's monarchs and dictators are all susceptible to the popular will. What one might call the Susceptibility Index is a relative one -- the globally crucial petrostates of Saudi Arabia, Qatar, and Kuwait seem comparatively secure. Yet, since so many articles of faith have already been punctured -- Mubarak is gone; Qaddafi looks like he will be behind him; the 230-year reign of the al-Khalafis of Bahrain is threatened -- we cannot rely on assurances that these geopolitical big wheels are absolutely secure either. And so oil prices are surging for a second day.

Here's how Helima Croft and Amrita Sen at Barclays Capital sum it up in a note to clients today:

The foundation that has held the region together for the past 30 years has been shaken and the first cracks that appeared in the tectonic plates with the uprising in Tunisia and Egypt is now causing widespread ruptures in the region.

Therefore, the economic models on which the big industrial nations, Wall Street, and the banks are operating will have to be reconfigured to take account of this new risk premium to the global economy. But Croft and Sen go on to say that oil history also shows that one should not fret too much -- markets correct themselves, and the flow of energy that feeds the global economy will probably not be damaged. Read on for  their thoughts.

Update: I discuss the big oil picture out of Libya and the Middle East this evening on Marketplace.

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