February 23rd, 2011
03:34 AM GMT
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(CNN) – After mass defections within his own government following the deaths of hundreds of unarmed protesters, Libyan leader Moammar Gadhafi has pledged to hold onto power or “die a martyr.”

Those words have had a calamitous effect on world markets. Stocks globally suffered their worst performance Tuesday in months; investors from Hong Kong to London and New York sold en masse as energy uncertainties ate away at world appetite for risk.

The turmoil has pushed oil prices near two-and-a-half year highs, as the OPEC basket of crude oils rose above $100 a barrel for the first time since the financial crisis. Stocks of airlines like Delta, United Continental and U.S. Airways all lost more than 5% as airlines shed $2 billion in market value on Tuesday alone due to the specter of higher fuel prices.

The VIX index, also known as the “fear” index in monitoring volatility in the markets, jumped in its biggest one-day gain since May, rising 27% on Tuesday.

With the Middle East in turmoil for weeks, why the strong market reaction now? As CNN’s Jim Boulden explains, Libya is an OPEC nation, with the largest proven oil reserves of any African country, and an important source for European nations and China:  32 percent of Libyan oil exports go to Italy, 14% to Germany, 10% to France and China, and 5% goes to the U.S.

What hasn’t happened so far has been a protracted sell-off in the markets. The question today is whether the sell-off continues.

“It could be the beginning of [a] correction because the markets have needed a catalyst, it’s needed a reason, and it’s not paying any attention to the macroeconomic data,” Kenneth Polcari, managing director for ICAP in New York, told CNN’s Felicia Taylor. “Markets have been up 40% since August and [economic] reports have been mixed at best.

“What’s happening in the Middle East has begun that process – people are getting nervous, it seems like its spinning out of control,” Polcari said.

So far, it appears traders have priced Middle East tensions into the market, hence no sustained sell-off. How might this be different? Gadhafi’s willingness to spill blood.

“Look what happened in Tunisia, look what happened in Egypt – people protested, it was relatively peaceful … Libya is now out of control,” Polcari said. “News like today causes people to rush for the door.”

And therein lies the question: As Asia wakes, markets are continuing to tumble. Is this the beginning of a protracted sell-off?



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soundoff (8 Responses)
  1. Mike

    Um, no - the Asian markets are holding steady. Corporate profits will stay high until commodities inflation starts to bite, and consumer confidence in the US is improving.

    The correction stimulus will be when the Fed's quantitative easing fades out.

    February 23, 2011 at 4:10 am |
  2. ben932

    Venezuela and China doors are open.

    February 23, 2011 at 4:28 am |
  3. ben932

    China could have "contracted" all the oil fields in Libya when US arrives :)

    February 23, 2011 at 4:56 am |
  4. equilibrium13

    and since when did ICAP become relevant ?

    February 23, 2011 at 8:12 am |
  5. Falconer1

    I always thought he was a Madman, Now we have heard him Bark! After Libya, if Algerian oil supplies get disruppted for any length of time, then expect Oil to reach $200 a Barrel, and $5.00 a gallon in the US!! Oouuchh!!!! Get your bikes tuned up and leave the cars in the garage.

    February 23, 2011 at 1:40 pm |
  6. Nela10

    The European leaders are doing business with the devil, a man that is clearly not on his right mind. A man that they obviously knew to perform unjust and e-moaral acts with the people of his country.
    When it is convenient you become blind.
    On the same time are coming with "moral demands" from other small middle eastern country, that does not have resources like oil.
    And the "little people" thinks that it is about ideology.
    Its all about money.

    February 23, 2011 at 1:43 pm |
  7. jenlika

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    February 23, 2011 at 4:49 pm |
  8. tarabeach

    Good morning, joining, glad to be here! I'm glad to be right here finally, going to submit since I've been reading through a extended time.

    Sooo anyways, sufficient info about me, see you around and hello yet again haha.

    PS, how do I change the time zone for my account? It's kind of weird having the time like 5 hours off lol I just got a new phone, so it would be very helpful for me. Amazing how even a trainer needs so many electronics now!

    February 23, 2011 at 5:01 pm |

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