Recent unrest in the Middle East and North Africa (MENA) region has affected international energy markets and put upward pressure on oil prices. MENA is home to some of the world's largest oil and natural gas producers and exporters. The region's exporters account for roughly 40% of oil and 20% of natural gas traded internationally. MENA countries also hold some of the largest reserves of oil and natural gas. (See the Appendix for energy profiles of the MENA countries.) This paper examines the consequences of the recent unrest on oil and natural gas markets, both in the short term and longer term. Energy prices can fluctuate based on current energy supply and demand conditions, expectations about future supply and demand, and financial market conditions. As a major source of the world's oil and natural gas production, MENA is critical to global energy markets. Current unrest there has shut down some energy production and raised uncertainties about future supply from the region. Some regional producers are seeking to reassure global energy markets, amid fears that unrest could spread to major producers or disrupt regional commerce. Oil is traded globally and oil prices are set in a globally integrated market under relatively short-term contracts. Consequently, what happens in any one part of the market—especially as significant a component as MENA—can affect the price of oil everywhere regardless of where the oil is produced or consumed. Natural gas markets have also been affected, but natural gas is not traded as widely as oil. Outside of North America and the United Kingdom, natural gas is traded mostly under long-term contract, and international market pricing is not as flexible as oil pricing. Consequently the effects of MENA unrest vary more by region, with the greatest impact currently being felt in Europe. The Brent crude oil price (a key international reference or benchmark) increased by nearly $20 per barrel from December 17, 2010, when protests started in Tunisia, to $113 per barrel on March 8, 2011, by which point unrest had spread through Egypt, Bahrain, Libya, and elsewhere. Oil prices had already been increasing throughout the fourth quarter of 2010—due largely to the global economic recovery and the resulting increase in oil demand—but threats to oil supply from, and oil transportation through, MENA pushed them up further than might otherwise have been the case. The unrest has contributed to higher prices by causing some supply reductions and giving rise to worries that unrest may spread to the region's larger energy producers. The MENA region includes some of the world's largest oil exporting countries and most important shipping chokepoints. The region produces 29.1 million barrels per day (Mb/d), a third of global oil supply, and its oil exports equal roughly 40% of the world's oil trade (see Table 1 ). Unrest in Egypt in January and February raised concerns of disruptions to oil and natural gas moving between the Red Sea and the Mediterranean, highlighting transit risks. Turmoil in Libya, a much bigger oil exporter than Egypt, and unrest in the Persian Gulf state of Bahrain increased concern in oil markets. As of March 2, 2011, estimates for how much oil production has been shut down in Libya varied, ranging from 0.8 Mb/d to 1.2 Mb/d. (For context, Libya produced 1.8 Mb/d last year, and the global oil market is roughly 86 Mb/d.) Several U.S. companies are invested in Libya's energy production, including ConocoPhillips, Hess, and Occidental Petroleum; they are minority partners in their joint ventures with the Libyan National Oil Company. Saudi Arabia and Kuwait have publicly offered to make up any shortfall from the Libyan disruption by using their spare oil production capacity, and industry data show that Saudi Arabia has increased production by about 400,000 barrels per day. But some of the additional Saudi volumes may be of lower quality (heavier and higher in sulfur content) than the Libyan crudes, making them an imperfect substitute for certain refiners. European refineries not equipped to process the lower quality crudes may have to source cargoes from places like Nigeria and Azerbaijan, which have crude closer in quality to the lost Libyan supplies. Other refineries around the world, particularly some of the new refineries in Asia, may be better able to absorb the additional heavy, higher sulfur crude from Saudi Arabia, but at least in the short run there may be a dislocation that may raise prices, particularly for light, low sulfur crude, as global supply is redistributed. The transition may have some leeway as a number of European refiners are undergoing prescheduled maintenance in March, though the situation may tighten as they come back into operation in April. Of greater concern to oil markets is the risk that unrest may spread to other, larger producing countries in the region. Of particular concern would be if unrest spreads to Saudi Arabia. It is the world's second-largest producer behind Russia. In addition to its current output, as of the end of 2010, Saudi Arabia also held about 80% of the world's spare oil production capacity —capacity that is now being used to offset supply disruptions elsewhere. If significant geopolitical unrest emerges in Saudi Arabia, market concern may drive prices considerably higher. If any such unrest somehow disrupts Saudi oil production, it is difficult to predict how high oil prices may rise. The security of the Strait of Hormuz, between Iran and Oman, is also of great concern. A third of the world's oil trade passes through the Strait of Hormuz, and any closing or confining of transit could also substantially raise oil prices. As of 2010, the United States imported half of the oil it consumed from abroad—9.4 Mb/d, of which 2.3 Mb/d came from MENA. More than 2.0 Mb/d came from three countries: Saudi Arabia, Algeria, and Iraq. Imports from Libya were less than 0.1 Mb/d; most of Libya's oil and other petroleum product shipments go to Europe. Because the oil market is globally integrated, the disruption of Libyan exports to Europe has affected the price of oil worldwide, including all U.S. imports and domestic production. Economically, higher oil prices have a negative impact on household budgets and national economic growth for countries that are major importers. According to recent testimony from Federal Reserve Chairman Ben Bernanke, while rising oil prices increase inflation and take income out of the pockets of consumers, reducing consumer spending and confidence, the recent increase does not yet appear to be a significant risk for the recovery or inflation. Some analysts estimate that a sustained $10 increase in the oil price can reduce U.S. economic growth by roughly two-tenths of a percentage point. However, this may not account for potential secondary effects such as through consumer confidence or other areas. The benchmark U.S. oil price on March 8, 2011, was $105 per barrel, versus an average of $80 per barrel in 2010. Even under a scenario in which the United States produced as much oil as it consumes, international events would still affect U.S. oil prices as long as international trade were permitted. The drag on economic growth via the trade deficit would be muted in such a scenario. Households and businesses could still face higher (or lower) costs due to international events, but wealth would be redistributed domestically from energy consumers to producers to a greater degree than it is today. There is much less risk to the United States from MENA-related disruptions of natural gas supply. The United States imports about 16% of the natural gas it consumes, nearly all via pipeline from Canada. In 2009, MENA liquefied natural gas (LNG) accounted for less than 1% of U.S. consumption. Since the beginning of the unrest, U.S. natural gas prices have actually declined. (See Figure 3 .) The global natural gas market is much more regionally segmented than the oil market, and events in one part of the world do not necessarily affect prices everywhere. Only about 30% of natural gas is traded internationally, versus 60% for oil. Most natural gas exports from MENA go to Europe or Asia, where supplies are mostly sold under long-term contracts, insulating consumers in the short term from any price fluctuations caused by unrest. Figure 3 highlights the minimal influence the unrest has had on natural gas markets. Some companies have had to scramble for LNG cargoes to limit their risk of a natural gas supply disruption, but there is ample spare capacity to meet this demand. The northern hemisphere winter is the main consumption season for natural gas, used primarily for heating, and prices will mostly be affected by changes in temperature. Europe is the region most vulnerable to a natural gas shutdown in MENA, particularly from North African countries. The complete cut off by Libya of its natural gas exports, which almost exclusively go to Italy, has contributed to a 12% increase in European spot prices since major protests began. Russia has increased its pipeline exports to Italy to compensate for the shortfall. However, since a market vendor in Tunisia lit himself on fire in December, European prices are down almost 7%. If supply from Algeria—Europe's third-largest supplier of natural gas behind Russia and Norway—were for some reason reduced or cut off, Europe would be hard-pressed to replace this gas. (See the Algeria synopsis in the Appendix for additional information.) Europe's network of natural gas pipelines is designed to move natural gas from east to west, and requires more interconnections to move supplies throughout the region. In contrast, Asian prices have remained almost flat since the unrest started in Libya. Oil and natural gas exporting countries in MENA rely heavily on revenues from energy exports to fund government budgets and fuel their economies. And MENA exports will make up a substantial component of world oil and gas trade for the foreseeable future.