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HEDGE funds are often fatefully named. Long-Term Capital Management, a hedge fund that had to be bailed out in 1998, had a notoriously short lifespan. More recently the Galleon Group, a large hedge fund named after an old-fashioned sort of sailing ship, has dramatically sunk. The boss of the fund, Raj Rajaratnam, and 21 other people have been charged in a sweeping insider-trading case that has allegedly led to at least $85m in illicit profits. 

On March 1st, the Securities and Exchange Commission (SEC) brought charges against Rajat Gupta (pictured), the former boss of McKinsey, a consultancy. He is the highest profile corporate executive to be ensnared in the case so far, having served as a former board-member of Goldman Sachs, a bank, and, until yesterday, Procter & Gamble, a giant consumer-goods firm. 

Mr Gupta was an investor in Galleon and a friend of Mr Rajaratnam, which is why he tipped him off, on multiple occasions, according to the SEC. For example, after Mr Gupta found out about Warren Buffett’s $5 billion investment in Goldman Sachs in 2008, he supposedly called Mr Rajaratnam, who bought 175,000 shares in Goldman. All told, Galleon raked in around $15m and avoided losses of around $3m thanks to Mr Gupta’s tips, the SEC alleges.

Mr Gupta fiercely denies the charges and vows to fight them. But the allegations will permanently tarnish his reputation, and may cause fallout at the companies he worked. McKinsey, for example, prides itself on advising bosses discreetly, and rarely even divulges its clients’ identities. This case against a former boss won’t be good for business. Goldman Sachs, already having settled a lawsuit with the SEC last year for allegedly duping clients into buying mortgage-backed securities without enough information, doesn’t need to give investors another excuse to question how information flows on Wall Street.

Mr Rajaratnam, who claims innocence despite the guilty pleas some of his colleagues have already put forward, is set to face trial on March 8th. With his day in court so soon, the timing of the SEC’s charges against Mr Gupta probably aren’t coincidental. The SEC may be trying to scare Mr Rajaratnam into a settlement while also bringing down the ultimate corporate insider. It’s one thing to topple a hedge fund manager, but it’s quite another to bring down a major figure in corporate America.

AS THE world debates how best to stem the violence in Libya, including the possibility of a military no-fly zone, we look back at our leader about Ronald Reagan's use of force in April 1986 after a Libyan-sponsored terrorist attack.

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Appointment in Tripoli
The Economist, April 19th 1986

In bombing Libya, the United States killed sleeping women and children and opened a dangerous new period in which terrorism against Americans and West Europeans may, for a time, get worse rather than better. Most Europeans but very few Americans conclude that America was wrong to use its bombers against Libya. The United States did not choose the best instrument of force available to it. Aerial bombardment rarely serves a political end, and better options were available on the night of April 14th-15th. It is not foolish or weak-kneed to worry about what will come next. Nevertheless, the time had arrived to use some kind of force against Colonel Qaddafi. Unless this week's bombing causes him to stop sponsoring terrorists, the time will come when it will be right to use more force and, if necessary, to overthrow him.

The United States should have no illusions about the course on which it has set out. It will be precarious, frustrating and possibly unrewarding. Twenty-five years ago America was confident that its big army and air force, with all the shiniest technology, could defeat guerrilla insurrections. That confidence was smashed in Vietnam, and the United States spent several years afterwards believing that military force could solve nothing. Under Ronald Reagan it rediscovered on the tiny island of Grenada that armed clout sometimes achieves good things. But the United States and its European allies face in terrorism a threat that is even more intractable than the guerrillas of the 1960s.

The need for action

 Americans would be wrong to conclude that force and more force will, by itself, suppress terrorism. A combination of political and economic pressure, better police work and attempts to ease the conflicts that help to generate terrorism are also needed to contain it. But it has to be understood, especially in a week of sickening television shots of the victims of American bombs, why military force must be one of the instruments in the fight against terrorism. Two reasons, one present and one prospective, justify an extreme course of action against Colonel Qaddafi. The present one is that, in attacking Libya, the United States was defending itself. America's existence, of course, is not threatened by anything that the colonel could do, even in his wildest dreams. But a government's first duty is to protect the lives of its citizens, and the evidence has damningly piled up over the years that Mr Qaddafi has paid for, housed, trained and directed terrorists whose business is to murder Americans (and Europeans). Proof of Libya's complicity in the latest terrorist attack, the bombing on April 5th of a West Berlin discotheque frequented by American soldiers, has convinced even some habitual sceptics. The colonel shows no true remorse over any of this—indeed, Mr Reagan and Mrs Thatcher claim that more terrorist attacks backed by him were in the works—and the United States has ample grounds for trying to stop him from going any farther.

Many people wonder why sanctions short of military force would not do. The answer is that the United States has tried all of them, and they have done no good. Had it been joined in its efforts by European governments, it might have been less inclined to go for the bombing that most of them deplored this week. The bland measures belatedly adopted by the EEC’s foreign ministers a few hours before America attacked were a tiny move in the right direction, but it is hard to believe that a man of Mr Qaddafi's passion and sincerity would be deflected by diplomatic reproofs. Some critics of America's bombing claim that it will encourage him to further wildness. So it might. But to do nothing—to accept failure—certainly would. To doubt that is to misunderstand the nature of modern terrorism and the minds of its perpetrators.

The prospective reason for using force against Mr Qaddafi is that before this century is over the rush of technology will probably deliver into the hands of some minuscule powers conventional weapons of frightening power, and quite possibly nuclear weapons as well. The West and Russia can live with their armed competition with each other. Neither can tolerate a world in which Qaddafis can give a few terrorists the power to wipe out whole cities and countries that do not concede their demands. The physical safety of the West ten years from now depends on its setting clear rules today which tell state backers of terrorism that they will be stopped.

Colonel Qaddafi is not the only, and perhaps not even the biggest, present backer of terrorism. The Syrian and Iranian governments are formidable competitors for that title. But Mr Qaddafi has made an example of himself. The Americans are justified in making an example of him too. Their purpose should not be revenge, however vengeful they may feel; it is to persuade Colonel Qaddafi to change his ways.

Better behaviour by Libya is not out of the question. Colonel Qaddafi is not the "mad dog" that President Reagan has described. He is deeply committed to certain principles and to his means of achieving them. That does not make him irrational or impervious to pressure. Two of his own children were injured, and an adopted daughter is said to have been killed. The thought of being killed or overthrown must grow in his mind when he sees that people are trying to achieve those things. The thought of what his actions are bringing down upon Libya must nag at his countrymen and (more to the point) his soldiers. The bombing may at first strengthen the colonel's grip. The longer-term calculation of his army officers, the only Libyans whose say about a change of policy or of leader might matter, could move towards a different conclusion.

Prepare the next steps

 The odds are, at least for a while, against a coup. The stories on Wednesday of internal risings against him seemed to stem from wild anti-aircraft fire and surprised newsmen's wishful thinking. America and Western Europe should therefore be aware that this week's events—including the range of attacks on Thursday from Heathrow to Lebanon—could be a prelude to even nastier ones. What should the West be ready to do?

If Libya does respond with more terrorism, the next step up the military ladder would be a blockade of Libya's oil-exporting ports, probably by mining them. This is a bigger and in many ways riskier military operation than the bombing America carried out this week: apart from anything else, it would need to go on for a long time and would involve interfering with neutral (eg, Soviet) rights of passage. It would, however, be less likely than the bombing was to kill civilians, and for that reason would have this week been preferable to the bombing raids. The blockade would need to last until the colonel condemned terrorism without reservation, and handed over some known terrorists to Western governments.

Beyond a blockade, if that did not work in making Colonel Qaddafi lay down his terrorist weapon, would lie an invasion and overthrow, of Libya's government. Even that would not get rid of terrorism. Terror in the modern sense—the murder of people who have no personal connection with the political grievance behind it—is not merely a phenomenon of the Middle East, though that is its chief arena. It has its roots there in the legitimate complaints of Palestinian Arabs, though it has produced many another, twisted, flower. The question of Palestine is not, it seems, about to be settled. Even if it were, there would still be people willing for other reasons, half-rational or wholly irrational, to take advantage of the technologies that make random murder so dramatic and practicable, and there would be governments willing to back them.

Even those who shrink from punitive measures against such governments accept the humdrum need for better airport security, intelligence about terrorists, control over Libya's embassies and the like. Saving lives is always better than avenging them. But the terrorist war of the late twentieth century has passed the stage where defence on its own is enough.

A VERY thoughtful analysis of our special report on food this week in Poverty and Power, a blog run by Duncan Green, head of research at Oxfam GB.  (An outstanding blog, by the way. Bookmark it now).

Mr Green gives the report “top marks on biology, botany, chemistry, ecology and the other natural sciences”; and zero marks on the “humanities – people, power and politics”. There’s nothing in the report, he says, on who does the farming (smallholders or large commercial farms); nothing on how they exercise influence over their governments and large food processing and distribution companies; and nothing on trade (as he rightly says, an “odd absence” for The Economist). “The bottom line for The Economist,” he concludes, “is that all that tricky power and politics stuff is just too difficult.”

The basic characterisation of the report is absolutely fair (though I don’t agree with the conclusion). So let me explain why the report takes the approach it does, and then respond to some of Mr Green’s specific points.

The report sets out to answer the question how will the world feed 9 billion in 2050? To do that, it concentrates on the basic constraints on food supplies – land, water and so on - and asks how they might be overcome. The report is only secondarily concerned with politics, policies and trade. This is not the only way of looking at the food business. One could look at other questions, such as why are a billion people hungry? Why are prices rising? Or one could say – as Mr Green does – that prices and other incentives influence how basic constraints are dealt with, and since these things are influenced by politics and policies, the distinction between constraints on the one hand and politics on the other is artificial.

All true. But in looking at the question of feeding 9 billion, the most useful thing The Economist can do is lay out some of the basics: land, water, climate, seed technology, etc. This seems justified in itself: farmers start with these things. It seems helpful because public debate on such matters is sometimes rather confused: the debate on GM technology, for instance, rarely makes a distinction between using genes from a different organism (GMOs) and changing – hopefully improving – the existing genetic base of plants through marker-assisted breeding. I thought such an approach would add to the sum total of human knowledge because there is already quite a lot about trade, small holders versus large farms and so on. I’m certainly not saying these things don’t matter. But even in 14 pages, you have to make choices. Above all – and I was surprised by this – there really is a problem of declining yield growth. Yields are growing more slowly than population for the first time in over 30 years. This seems a big deal and deserves more attention than it usually gets.

So the report concentrates on the “what” of food (what’s gone wrong; what needs to be done), rather than the “how” (how to do it). Obviously these aren’t contradictory approaches. But starting with the “what” seems justified because it is the prior question.

So much for the basic approach. Let me turn to a few of the holes in the argument that Mr Green points out. Because the problem of boosting yields is such a big one, it seems to me one can make too much of the trade-offs between small and large farmers. These do exist but because the problem of failing yields is so large, I suspect we will need better productivity from both large and small farmers. Neither can do it alone. Which will dominate will vary from place to place. Two of the great successes in agriculture have been Brazil and Vietnam. Brazilian farming is dominated by large commercial exporters; Vietnam’s by smallholders who also export. I’m agnostic about whether large or small farms matter most, though I suspect that in practice people will want to leave farming so consolidation of plots is inevitable.

On gender, Mr Green is right: because women do most of the farming in many developing countries, sexual discrimination in things such as credit policies is a big problem. Getting rid of  it is desirable in itself and would boost output.

Mr Green takes me to task for saying “Pushing up supplies may be easier than solving the distributional problem” and says this is a complete cop-out. Maybe. But the sentiment is supposed to be a straightforward statement of fact. It will be easier to provide extra food to the have-nots by growing more, than by switching it from the haves by transforming distribution systems. Damaging trade barriers have persisted for decades. We can’t stop the biofuels lunacy. I’m certainly not against boosting producer organisations or tackling vested interests that skew government decision-making (The Economist has been railing against trade distortions for 150 years). But I fear that, unless we boost yields of staple crops, the current spike in food prices won’t be a spike at all but will turn into an endlessly sustained period of high and rising prices.

IT ISN'T always cause for worry when billions are being splashed on property deals. Two big commercial-property transactions have been announced this week. On February 28th Ventas, an American real-estate investment trust (REIT) specialising in health-care facilities and housing for the elderly, agreed to buy Nationwide Health Properties (NHP) for $7.4 billion. And today Centro Properties Group, a debt-laden Australian group, announced a major restructuring plan, the centrepiece of which is the $9.4 billion sale to Blackstone of its portfolio of American shopping malls. 

The two deals are very different. The Ventas-NHP tie-up, paid for in Ventas shares, is about old-fashioned consolidation. There are lots of listed REITs and little happening in the way of new development. The deal follows other acquisitions by Ventas and will create the country’s largest health-care REIT, helping to diversify the combined group’s assets and reducing Ventas’s leverage. Inexorable demographic forces underpin the sector’s growth prospects: the baby boomers are starting to retire and America’s 85-plus age group is growing at three times the national average. 

The Centro deal is about escapology rather than strategy, the cycle rather than structural change. As well as offloading its American assets, the Australian group has reached agreement with its senior creditors to extinguish its debt in return for almost all of its Australian assets, too. If the restructuring goes ahead as planned, about $100m will be left over for Centro’s shareholders and junior creditors. 

The sale of the group’s portfolio of 588 strip malls in America is nonetheless an important moment in the commercial-property recovery. To date, institutional investors have been channelling money into high-grade, or “prime”, assets in America’s big, international cities, where demand is always stronger. The next stage in the industry’s recovery will be for that money to start flowing into secondary assets like Centro’s malls, whose anchor tenants are supermarkets and discount stores. 

That point has not yet arrived. But Blackstone is the type of opportunistic investor, on the prowl for buildings where it sees the potential for capital gains, which acts as a bridge between the distressed owners of today and the institutional investors of tomorrow. This is not the first investment it has made in shopping centres since the crisis but it is the biggest, and it had to fight off competition to land the assets. If the Ventas purchase is a reflection of American ageing, the Centro sale is a bet on the strength of American consumers. 

ANOTHER Friday, another Tahrir Square, this time in Baghdad. At the end of last week, several thousand people came for a day of shouting and chanting. But things turned nasty when the demonstrators tried to push down a blast-wall barrier onto a bridge leading out of the square into the heavily-guarded Green Zone which houses Iraq's parliament and its ministers. As parts of the wall collapsed, riot police sprang into action. Later they used  water cannons, gas and live ammunition on protesters, said eye-witnesses.

The protest may have been small but the authorities were determinted to quash it. The prime minister, Nuri al-Maliki, gave a stern speech saying that Saddamist and al-Qaeda factions would try to take over—or attack—any protests. Security officials predicted bombs. Clerics, who are close to or part of many political factions, urged their followers to stay away. Journalists filming the demonstrations were arrested and a curfew banning vehicles was imposed across the city. Everything closed down. The city was silent except for children playing in the streets unusually empty of cars, and a few hundred people—mainly young men—who walked miles from the suburbs to the square, waving banners. Largely secular, they were a mix of graduates and working class, all with the same grievances: not enough electricity and clean water, no jobs, corrupt politicians who wasted eight months on full pay forming a government. Iraq’s democracy, they said, was not worth much unless their elected representatives worked harder.

The "day of rage", organised like others in the Middle East on social networking websites, spread across the country, with bloody consequences. Around a dozen people were killed in clashes between police and protesters in Mosul, Kirkuk, Fallujah and even near the usually peaceful Kurdish city of Sulimaniyah. A number of government buildings went up in flames, and various politicians stepped down, notably the governor of the oil-rich southern city of Basra.

Mr Maliki released a conciliatory statement promising to look into the demands of the people. Protesters said they would be back on the streets soon. When demonstations began in Tunisia, ministers said Iraq was immune to such unrest because it was already a democracy. They may have underestimated Iraqi anger about their government. As one old man in Tahrir Square said, "we did vote for them, but they’re gangsters."

NO IRISH election has produced a result as far-reaching. In a landmark election on Friday, the centre-right Fine Gael transformed the political landscape by displacing Fianna Fail as Ireland's largest party. When parliament reconvenes on March 9th, Fine Gael seems likely to form a coalition with the centre-left Labour Party, which also performed strongly at the polls, almost doubling its seats. Although the seat count has not yet concluded, such a government would enjoy the largest parliamentary majority in Ireland's history.

Since 1932 Fianna Fail, a centrist nationalist party founded by Eamon de Valera, has been Ireland’s natural party of government. It has been in office for three out of every four years since, and continously since 1997 (with a number of coalition partners). But on Friday Ireland's voters, enraged by a government that had taken the economy on a rollercoaster ride that culminated, last November, in an €85 billion ($115 billion) rescue by the European Union and the IMF, exacted their revenge.

Overnight a political giant was turned into a pygmy; Fianna Fail lost three quarters of its seats and finished behind Fine Gael and Labour. The party won just one seat in the capital, Dublin. Many ministers, including the prime minister, Brian Cowen, did not seek re-election; others lost their seats. Fianna Fail's erstwhile coalition partner, the Green Party, which had triggered last week's early election by quitting government in January, was completely wiped out.

The scale of Fianna Fail’s defeat raises questions over its future as a political force. The party finds itself unrepresented in over half the country’s 43 constituencies, and without a single woman member of parliament. This leaves it poorly equipped to lead the opposition benches, where it will find itself in competition with Sinn Fein. That party, formerly considered fringe, has greatly increased its parliamentary representation, and bolstered its presence with the election of its president, Gerry Adams.

Fine Gael's success marks a triumph for its underestimated leader, Enda Kenny. In 2002 Mr Kenny, Ireland’s longest-serving parliamentarian, took over the leadership of a party in some disarray. Eight months ago Mr Kenny defeated a challenge to his leadership. Back then the party was lagging behind Labour in the polls. It is now a handful of seats short of an overall parliamentary majority and Mr Kenny is prime minister-elect.

If Fine Gael and Labour are to form a parliamentary alliance they must first narrow the policy differences that sharply divided them in the election campaign. Seeking to maximise their prospective electoral gains, the parties disagreed on tax, public spending and how quickly the budget deficit should be reduced.

But time is not on their side. After March 9th the new government will face a stern test at an EU summit on March 24th-25th. There, Ireland may come under pressure from Germany and France to raise its low corporate-tax rate in exchange for an easing of the terms of the EU element of the bail-out package. During the campaign one of the few issues that united all Ireland's parties was that the rate, seen as vital in securing foreign investment, should be left untouched. For the new government, there will be no political honeymoon.

In a  guest post, a Middle East editor at the Economist Intelligence Unit, our sister organisation, examines the way in which dictators choose whether or not to use violence to stay in power.

Violence only works if it is overwhelming. Up to a critical point, civilian losses embolden protesters who will rally against the injustices they see in the loss of their comrades. If the losses are massive, and pass that point, protesters are likely to realise that the state means business and is here to stay. This was the case in 1991; as soon as Saddam Hussein was allowed to use helicopter gunships, he did. The magnitude of destruction was stratospheric and anybody seen as being remotely sympathetic to the uprising was punished. Even palm trees were destroyed (10m in Basra alone), and the Marshes were drained, ostensibly to stop rebel fighters from seeking refuge there, but undoubtedly also to punish the people seen by the state as being complicit in the uprising by destroying their livelihoods.

The need for a patronised inner coterie: Iraq taught us that magnitude of destruction has to be immense. Muammar Qaddafi's rhetoric suggests he understands this and is willing to follow through. This will depend on the willingness of the army to follow his directives. Saddam did not have the army, but he did have a series of concentric circles of supporters loyal to him because of the patronage he extended them (special-forces units and tribes). He had tied their interests to his survival so successfully that they could not risk defecting. In the same way that Mr Qaddafi has turned to foreigh mercenaries, Saddam Hussein could also rely on his own foreign legion, the Mojahid-e-Khalq organisation whose divisions were used to fight both against the Kurds and the Shia down south (Mariam Rajavi, one of the group's leaders, famously said "take the Kurds under your tanks and save your bullets for the Islamic Guard").

The need for a scapegoat. Iraqis in 1991, even the Shia, did not trust Iran. According to Kanan Makiya, an Iraqi academic in his book, "Cruelty and Silence", agents from the Iraqi state began to post pictures of Iran's leader, Ayatollah Ruhollah Khomeini, across the south. This allowed Saddam to frame the uprising as one orchestrated by Iran, not disgruntled Iraqis with real grievance against the regime. This idea gained traction and was key to maintaining support among the "White Provinces", the mainly Sunni areas to the north and west of the country that feared that an Iranian-style regime would replace Saddam, and that the new system would be inherently hostile to their community. These provinces remained loyal and formed the mainstay of Saddam's support base throughout the uprising.

Supporters of the monarchy in Bahrain are painting the unrest as a Shia uprising to try to retain support of the country's Sunni community (despite leading Sunni opposition MPs, including Munira Fakhro of Wa'ad, coming out in support of the protest movements). Similar tactics, but with an ethnic dimension, have been used in Jordan; King Abdullah sacked the Palestinian-born prime minister and replaced him with a Jordanian replacement. Part of the reason for the move is likely to play on the Palestinian/Jordanian rift within society and to shore up his Jordanian support base who are uneasy about Palestinian representation in the government.

The will to maintain power vs. the desire to pander to international public opinion: Libya went through years of sanctions and was an international pariah for decades. Mr Qaddafi would probably like to nurture friendly ties with Europe and the wider international community, but he will not do this at the expense of his own survival. Hosni Mubarak, Egypt's former president, crumbled under international pressure. This was part of the reason he could not use overwhelming force to maintain his grip (the apparent defection of the army played a part too). Mr Qaddafi, like Saddam Hussein, probably cares less about external pressure because the damage has been done. He may feel he can go it alone, as he has in the past.

IT LOOKS like there will be no surprises from Ireland's general election, which took place yesterday. Counting began this morning, and, because of the complex proportional-voting system the country uses, the full results may not be announced until tomorrow. But an exit poll confirms what all observers expected: the opposition Fine Gael will top the vote, and its leader Enda Kenny (pictured) will become Ireland's next taoiseach (prime minister). Turnout appears to have been strong.

Voters who have been through one of the most devastating economic crashes in Ireland's history have taken their revenge on Fianna Fail, which has been in office since 1997 (with various coalition partners). According to the exit poll, the party's vote share fell to 15%—quite a drop for a party that took 42% of votes in the last election, in 2007. It may be all but wiped out in Dublin.

Fianna Fail has won more seats than the other parties at every general election since 1932. It has been in power for three out of every four years. How the party responds to this reverse will be one of the interesting sub-plots in Irish politics over the coming months and years.

As for Mr Kenny, few will envy his position. One of his first tasks will be to find a coalition partner, as the party's predicted 36% vote share will not be enough to allow it to govern alone. The most likely candidate is Eamon Gilmore's Labour Party, generally seen as Fine Gael's traditional partner. But the two parties did not exactly campaign in harmony, and differences over taxation and spending may make their alliance a fractious one.

Yet the biggest challenge for the new government will be how to satisfy Irish voters' craving for a renegotiation of what they see as an unfair bail-out foisted on it by the European Union and the IMF in November. Mr Kenny and Mr Gilmore both campaigned on pledges to improve the terms of the European element of the deal. Voters will be watching keenly to see if those pledges can be made good. The word from Brussels appears to be that they should not get their hopes up.

A full report will follow on Monday.

(Photo credit: EPP)

THANK you for all your entries in our latest caption competition. We asked you to provide a pithy caption to accompany an image of gamblers in Singapore. The city-state's casinos are proving as profitable as those in Las Vegas; much of the cash comes from Chinese visitors. You came up with some good ideas. Our favourite entries included:

awoe: "Chips off the new block"
gamaua: "Singa-rich"
YanR: "Sin City-state"
kypeej: "Cleaning up in Singapore"
blossomwell: "Yuan-a bet?"
Madumbi: "Betting on red"
Shraggles: "Sino-poor?"
vhzuSBEadR: "Next we'll try jaywalking"

Once again we're pleased to announce two winners: we used your suggestions for both the picture caption and the story's title. "Sin galore", proposed by mikebobo, is the title. Our caption is a slightly amended version of an idea proposed by Sharpsburg, who is clearly familiar with Singapore: "Yes! Now I can pay my parking fine".

These will both appear in the paper tomorrow. We offer our congratulations to the winners, and our thanks to everyone who took part.

A MONTH ago Brent crude oil stood at around $96 a barrel and Hosni Mubarak was ensconced as Egypt’s ruler. Now he is gone, overthrown by a display of people power that is shaking autocratic leaders across north Africa and the Middle East. And oil has surged above $111. Little wonder. The region provides 35% of the world’s oil. Libya, the scene of growing violence this week, produces 1.7m of the world’s 88m barrels a day (b/d).

So far prices have not been pushed up by actual disruptions to supply. Oil hit a peak even before news emerged that some foreign oil companies operating in Libya would stop some production and that the country’s ports had temporarily closed. As Adam Sieminski of Deutsche Bank points out, oil prices are driven both by current conditions and by future expectations.

Oil markets don’t like surprises. The sudden ousting of Mr Mubarak and the unrest in Libya, Bahrain, Yemen, Iran and Algeria (which between them supply a tenth of the world’s oil) have added 16% to oil prices. But the big worry is that spreading unrest will culminate in another shock akin to the oil embargo of 1973, the Iranian revolution or Iraq’s invasion of Kuwait.

Oil is more global than it was during those previous crises. In the 1970s production was concentrated around the Persian Gulf. Since then a gusher of non-OPEC oil has hit markets from fields in Latin America, west Africa and beyond. Russia overtook Saudi Arabia as the world’s biggest crude supplier in 2009; OPEC’s share of production has gone from around 54% in the mid-1970s to just over 40% now.

Yet the globalisation of oil supply has not diminished OPEC’s clout as the marginal supplier of crude. Markets are tight at the moment. Bumper inventories, built up during the downturn, are running down as the rich world recovers and Asia puts on a remarkable growth spurt. Demand rose by a blistering 2.7m b/d last year, according to the International Energy Agency, and is set to grow by another 1.7m b/d this year by Deutsche Bank’s reckoning. Many other producers are already running at full capacity; OPEC has its hands on the only spare oil (see chart).

If Libya’s oil stopped flowing importers would look to Saudi Arabia to make up the shortfall. The oil could probably flow to fill the gap in Europe, Libya’s main market, in a matter of weeks. OPEC claims that it has 6m b/d on tap but that looks wishful. Analysts think the true number is nearer 4m-5m b/d, with 3m-3.5m b/d in Saudi hands. That is ample to plug a Libyan gap but would hasten the day when growing world demand sucks up all spare production capacity and sends oil prices rocketing. Analysts at Nomura reckon that it would only take a halt of exports from Algeria as well to absorb all the slack and propel oil to a terrifying $220 a barrel.

Despite rising prices, Saudi Arabia has so far been reluctant to turn its stopcocks. OPEC claims that the world is amply supplied with oil and seems content with a price around $100 a barrel. Traders hope that Saudi Arabia will boost production stealthily or that OPEC will call a special meeting to raise quotas and calm markets.

The worst-case scenario for oil prices would be some kind of disruption to Saudi supply itself. That concern has become livelier given the unrest in neighbouring Bahrain. The tiny island kingdom produces little oil but is of vital strategic importance in the Persian Gulf, a seaway that carries 18% of the world’s oil. America’s 5th Fleet, which polices the Gulf against troublemakers (ie, Iran), uses the country as a base.

The Saudis may also fear that protests by Bahrain’s Shia population could spill over their own borders. Saudi Arabia’s eastern provinces are home to both its oil industry and most of its Shias, who may also have cause for grievance with their Sunni rulers. One crumb of comfort is that oil facilities across the region are generally located far from the population centres, where protests tend to be concentrated, and are well defended against anything but a concerted military assault.

Building stockpiles
What might be the effects of a more general supply crisis in the Middle East and north Africa? The oil shocks of the 1970s spurred the world to build stockpiles, such as the 750m barrels of crude oil in America’s strategic petroleum reserve, to be drawn on in the event of upheaval in the Middle East. China is building a strategic reserve of its own. America’s Energy Information Administration puts total world stocks in the hands of governments and industry at an immense 4.3 billion barrels, equivalent to nearly 50 days of global consumption at current rates.

The impact of a crisis would therefore depend on how much oil production was lost and for how long. Even seismic shocks in oil-producing countries might not cut off supplies for very long. Yet the example of Iran shows what can go wrong. Leo Drollas of the Centre for Global Energy Studies, a think-tank, points out that pre-revolutionary Iran pumped 6m b/d. The new regime ditched Western oil experts and capital, and it has never come close to matching that level of output since; it now produces just 3.7m b/d. Middle Eastern oil is largely state-controlled but, as Amrita Sen of Barclays Capital observes, foreign investment remains vital to north Africa’s oil industry. If new regimes emerged that were more hostile to outsiders, that might have a lasting effect on production.

The world could probably weather a short-lived crisis. But the damage if oil prices spiked and stayed high for a long time could be great for the recovering economies of the rich world. As for the prospects of reducing the importance of the Middle East to global oil supplies, forget it. Strong Asian demand is likely to mean that OPEC’s share of oil production rises again as it pumps extra output eastward. A troubled region’s capacity to cause trouble will not diminish.

Read on: In Britain, high fuel prices have more of a political effect than an economic one

IN ITS early days, the founders of eBay would often say that their real accomplishment was neither their clever technology nor the electronic marketplace they had created—both of which existed before. Instead, their achievement was spiritual: they helped create trust between people who never met.

Building this sort of trust was always going to be a challenge in China, where counterfeiting and the production of dangerously flawed products is rife, but it has been a key aspect in the development of Alibaba, China’s eBay-inspired ecommerce platform. The company’s value as an electronic listing service has always been evident: standard business directories had disappeared after the communist revolution and an information vacuum persisted after the economic re-awakening. However, given China's problems with fraud and product quality, its potential as a trading platform has been a matter of debate, attracting both believers and sceptics. It now appears evident that at least some scepticism is warranted.

On February 21st, in a filing with the Hong Kong Stock Exchange, Alibaba announced two of its most senior representatives, David Wei, the chief executive, and Elvis Lee, the chief operating officer, would resign to accept responsibility for the company having granted "golden status" a mark of supposed integrity, to 2,236 dealers who it says had subsequently defrauded buyers. Although the two executives were not personally implicated, the company said an internal investigation had found that about 100 sales staff and “a number of supervisors and sales managers” were “directly responsible in either intentionally or negligently allowing the fraudsters to evade” various controls.

Alibaba says the average compensation claim from victims of the scams is only $1,200 but it has not so far disclosed how much the claims are likely to cost it in total. In 2009, as the frauds started coming to light, the company set up a compensation fund, which has so far paid out $1.7m to 2,249 buyers.

The revelations, and the company’s response, have generated conflicting responses. One view, which the company itself is vigorously promoting, is that the resignations and the firm's public announcements are indicative of Alibaba’s underlying integrity and quality. It investigated the fraud accusations thoroughly and was forthcoming in publishing details, in sharp contrast with other Chinese companies caught up in scandals, most notably those involved in distributing melamine-tainted milk.

Conversely, it can be argued that Alibaba had little choice. The revelations put the company’s very existence at risk. Anything other than a highly publicised defenestration of senior people could have been fatal to the overall business. The scam originated in a critical part of its business, a dedicated platform called “China Gold Supplier”. A trader pays a fee to join, and then after being verified by a third party, can sell to global buyers. The scams endangered the endorsement value of this verification system, and, of course, undermined the incentives for any global buyer to work through Alibaba. Had Alibaba done nothing, it may have ultimately been worth nothing.

The investigation attributed the fraud to “the pursuit of short-term financial gain at all cost”. It emerged at a time when Alibaba’s broader business prospects have seemed to be dimming. Its shares fell abruptly after the announcement, but even before it they had been trading at less than half their level in the heady days of 2007, following the company's initial public offering.

The company’s chairman, Jack Ma, is a brilliant speaker and acclaimed visionary and, apparently, too important to walk the plank with his underlings. In the aftermath of the announcement, he issued a letter saying, “only through holding onto our ideals and our principles will we be able to become the pride of this era!” Despite the resignations, global buyers considering using Mr Ma's portal may need further reassurances as to what those ideals and principles are.

Read on: Alibaba's Jack Ma, China's king of e-commerce (Dec 2010)