Back to Saudi's fault lines

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.

Back to oil. What is preoccupying oil minds today as prices meander up? Expropriation. Over the weekend, Libyan Col. Moammar Qaddafi suggested that the oil companies headquartered in countries currently bombing him would suffer dispossession of their fields (what he precisely said was that "oil will not be left to the United States, France and Britain."). A day or so earlier, Qaddafi had suggested that he might turn the oilfields over to Chinese and Indian companies. (Presumably he might have added Russia to the list after Prime Minister Vladimir Putin denounced the western campaign as tantamount to the crusades, but then President Dmitry Medvedev muddied the waters by calling Putin's remarks "unacceptable.")

Expropriation would be a big deal for some countries and companies, such as Italy's Eni, the biggest foreign hand in Libyan oil; and Britain's BP, which is exploring for oil there and wishes to be like Eni.

If expropriation does take place, look for combat in the courtroom. If either the Libyans or any favored foreign suitor wishes to make good with a cash offer, that might be insufficient, since whatever was paid might not include the potential profit upside and security that accompany possession of actual reserves. In short, Eni and BP both would prefer to have the fields themselves. "The western companies won't give up their concessions without a fight," Frank Verrastro, director of energy and security at the Center for Security and International Studies, told me in an email.

Ahmad Gharabli AFP/Getty Images