Michael Levi makes some good points, suggesting that Libyan oil isn’t coming back anytime soon:
If Khadaffi manages to hold on, it will be brutal. There is no way that sanctions on Libya would be lifted quickly. The West might resign itself to a Khadaffi victory, but it will not be willing to line his pockets. Non-Western oil companies would be hard pressed to fill in, both because of technical demands, and because of the tricky international politics that would be involved.
In addition, regardless of who prevails, worker safety will be a lingering concern. Foreign oil companies are not going to send their workers back in until they’re confident that they’ll be safe. It will take some time for such confidence to be established.
According to what I’ve read this past week, about two-thirds of the country’s oil production is offline. And, after his forces made gains this week, Qaddafi doesn’t look like he’s heading for the exit just yet. His regime also has considerable financial resources, which Daniel Drezner puts in context:
Even the tightest financial sanctions don’t matter at this point. Qaddafi possesses far more financial reserves than, say, the Ivory Coast’s Laurent Gbagbo — and yet Gbagbo has managed to stay in power for five months. Sanctions should eventually work in the Ivory Coast, but they’re not going to work anytime soon in Libya.
Oil closed down about three percent on the week.