What if Moammar Gadhafi Turns into Saddam Hussein?

Morris Segall      inflation, Iran, Libyan air force, Libyan civil war, Middle East unrest, oil infrastructure, reduced economic growth, rising oil prices, Saddam Hussein, weak foreign policy

In the fluid sequence of events in the Libyan civil war, it appears the forces of Moammar Gadhafi are solidifying and mounting a more cohesive counter-offensive to the rebellion that has challenged the Libyan dictator. First, pro-government ground forces are conducting more concerted and organized offensive attacks on targets that have been selected for their strategic and pyschological importance. Second, the government is utilizing its air force more cohesively and effectively in supporting the ground offensives and inflicting significant damage to rebel positions and material. Today, the Gadhafi government bombed key oil installations in rebel controlled territory for the first time.

This raises the question-suppose Moammar Gadhafi is prepared to destroy his oil infrastructure, as did Saddam Hussein, to challenge the West in exerting further pressure on him and getting involved in the civil war, knowing they are reluctant to do so. In doing so, Gadhafi is challenging the West to stop him and their failure so far to do so is empowering him to use more force that could overwhelm the rebel forces.  The increased use of air power is the deciding factor in government forces defeating the rebels. By bombing oil installations, Gadhafi is also punishing the West by continuing to scare the oil markets and potentially drive up oil prices further. Furthermore, destruction of oil pumping and distribution facilities would lead to protracted elevation in oil prices which would harm worldwide economic growth and lead to increased inflation. We do not think this strategy is far fetched given the erratic behavior of Moammar Gadhafi, his obsession with staying in power and his anger at the West for trying to force him out.  

The failure of the West to “ground” Libyan air power is turning the tide of the civil war from what two weeks ago looked like a successful rebellion leading to the ouster of Mr. Gadhafi. If the rebellion in Libya is crushed, it will have long lasting and far reaching negative implications for the U.S. and its NATO allies. First, it will have demonstrated again to the world how impotent U.S. and Western foreign policy is in the post Iraq/Afghanistan war period. We have commented in several geo-political posts, on the blog and website,  the danger to U.S. and Western security and economic interests weak and failed foreign policy initiatives present. Second, the failure to tangibly support the Libyan rebels, to the point of their success, will reverberate throughout the Arab world as another failure of the U.S. and its allies to support democratic movements in that part of the world. Third, in their anger and frustration, the unrest we have seen so far in North Africa and the Middle East could spread and become more violent, threatening friendly governments in Jordan and Saudi Arabia and those of the Gulf Emirates. Our failure to support democratic movements will strengthen the reactionary and antagonistic actions of Iran and its allies in Syria, Iraq, Lebanon and Gaza.  The failure of the U.S. and its NATO allies to commit military assets to protect their national interests send a signal to our more strategic adversaries in Moscow and Beijing that we are not prepared to confront them in military and economic expansionism.  

The price of this foreign policy failure will be higher prices for oil for an extended period of time, suppressed economic growth in the oil consuming, industrialized economies and increased worldwide political tensions. None of these are good for worldwide public capital markets. In view of the new developments in Libya, we must now be more vigilant to economic impacts here and abroad and the reaction of the capital markets.

Morris R. Segall