What are the likely economic consequences Qaddafi’s death (provided the political transition is not too bumpy)?

  1. We should see an increase of international aid flows to Libya. Already in September, the IMF had promised technical assistance and funding to the Committee of Liberation. The United Nations, which had already released 1.5 billion dollars of Libyan assets held in the US, out of  a total of 30 billion, will give back the rest, which means that new opportunities may arise for European and Italian companies in the reconstruction effort. 
  2. The price of oil may fall, albeit marginally. Libya is the 17th largest oil producer with a market share of just over 2%. Although it will take time to restore production levels to the pre-conflict levels, the new authorities will do anything to increase the supply, and market prices may react immediately downward. 
  3. The moderation of commodity prices will tend over time to be reflected in prices in the importing countries, slowing inflation further. 
  4. It ‘likely that this will encourage the Fed and the ECB to pursue more expansionary QE policies, in support of bank liquidity and government securities of EUZ problem countries. 
  5. Therefore we can expect a moderate decrease of nominal rates of interests in EUZ that  may deliver small positive effects on the debt dynamics and investment