The domestic politics of oil

Developments in Libya continue to dominate the news, and rightly so. The view from Whitehall is that this stands off will continue for some time. There is even talk that we might be heading to a situation where Gaddafi holds onto Tripoli for months while the rest of the country is liberated from his rule.

The longer this instability continues in the Middle East, the higher the price of oil is going to go. This will have two immediate domestic political consequences. First, the price of petrol at the pump will increase—making fuel duty an even bigger political issue. Second, higher oil prices will depress economic growth.

Word is that the Saudis are prepared to pump more to keep prices down if necessary. But this hedge won’t mean much if instability spreads to Saudi Arabia itself.