Image: Libya © Patrick Baz, AFP, Getty Images

Related topics: oil, emerging markets, investing strategy, politics, Jim Jubak

It's different this time.

No, no, it really is.

Libya isn't Egypt, and the effects on the stock market this time will be different from those of the earlier crisis.

Different enough, in my opinion, that you need to factor them into your investment strategy. Yet not so different that you need to tear up your plans for 2011.

The short-term effects don't look all that different, I admit -- especially if you look mainly at stocks of developed economies. Egypt's revolution, as scary, exciting and important (especially for Egyptians) as it was at the time, created barely a ripple in U.S. stock markets. On Jan. 25, the "Day of Rage," the Standard & Poor's 500 Index ($INX) closed at 1,291. On Jan. 28, the biggest drop during the crisis, the index closed at 1276. By Jan. 31, when 250,000 protesters gathered in Tahrir Square, the index was up to 1,286. By the time Hosni Mubarak resigned on Feb. 11, the S&P had climbed to 1,329.

Why Libya matters more

The Libyan crisis is already longer than the Egyptian crisis. Demonstrations began on Feb. 15 in Benghazi, and the crisis was in Day 16 as of March 3. The Egyptian crisis from the "Day of Rage" to Mubarak's resignation ran for just 17 days.

Image: Jim Jubak

Jim Jubak

At this point, U.S. stock market reaction to the Libyan crisis isn't a whole lot bigger. The S&P 500 closed at 1,328 on the day of the Benghazi protests, fell to 1,306 on Feb. 17, when Libya saw its own "Day of Rage" demonstrations, rallied, then fell back to 1,306 on March 1.

If you want to see "different," you have to look at oil prices. Oil traded at $89.11 a barrel on the New York Mercantile Exchange on Jan. 21, just before the start of the Egyptian crisis. It traded at $89.03 on Feb. 4, a week before Mubarak resigned. So far, so good.

In the case of the Libyan crisis, on the other hand, oil traded at $86.20 on Feb. 18, a few days after the initial Benghazi protests. Yet by March 2, the price in New York was over $100 a barrel, at $101.57.

It stands to reason. Egypt isn't a major oil exporter -- the country actually has to import oil to meet its domestic needs -- even as it increases its production of natural gas. Libya is the world's No. 12 oil exporter, with exports of 1.6 million barrels a day. That production is especially hard to replace, because Libya is a major source of light, sweet crude, which is easy for the world's refineries to handle. Saudi Arabia would have no problem right now ramping up production to meet any shortfall from Libya; the Saudis enjoy about 4 million barrels a day in excess capacity. But much of its oil would be heavy, sour grades that are harder to refine.

The differences between Egypt and Libya also argue for a difference in how oil will behave when the latter's crisis is over.

In the case of Egypt, any spike in oil prices was justified only if you believed that the crisis would endanger the 4 million barrels a day that flow through the Suez Canal and into a major European pipeline. Take out that supply route and the shortfall equals Saudi Arabia's total excess oil capacity. When the crisis ended and the canal and pipeline were clearly still intact, there was no reason for oil not to drop back to its former price.

In the case of Libya, there are well-founded worries about damage to its oil fields, pipeline and terminal shutdowns, and the flight of experienced engineers behind them. It sure doesn't calm nerves when Moammar Gadhafi threatens to blow up the country's oil fields -- especially when he's clearly capable of just about anything. Reports out of Libya testify to falling production during the crisis. The state-owned National Oil Company of Libya, which normally pumps about 420,000 barrels a day, says production has dropped to 100,000 barrels a day.

No one knows how much damage has been done to oil fields and transportation systems -- and no one will know until the war between Gadhafi and the protesters is over. That nervousness will add to oil prices. Nonetheless, I expect that the end of hostilities will show the damage is less than is feared right now.

What if regime change spreads further?

I don't expect oil prices to drop back immediately to their precrisis levels, as they did after Egypt. No one expects that protesters in Libya stand a chance of toppling the Gadhafi regime. There is no organized opposition and Gadhafi has kept the army splintered so it can't offer the kind of alternative institutional power that pushed Mubarak out the door in Egypt. And this is one of the world's most oppressive and brutal regimes, with no apparent compunction about using any measure of force against its opponents. It is hard to imagine that protesters could put it on the ropes.

Still, it's worth asking: If Gadhafi falls when everyone thinks it is so unlikely, then what regime is not in play? (The high population of young people in these countries, which has economic benefits, has also contributed to unrest. For more on this, see my recent column on the demographic dividend.)