Gadhafi Will “Probably Survive”: Oil Up as U.S.-Led Coalition Starts to Fray

The crash of a U.S. military F-15 bomber Tuesday awoke many Americans to the startling realization that, yes, we are at war in Libya.

"Once you start dropping bombs on a place, you are at war," says Robert Powell, Mid-East analyst at The Economist Intelligence Unit. "You can't skirt around it with diplomatic language."

But clearly there's a difference between imposing a no-fly zone in Libya and all-out invasion of Iraq or Afghanistan. While limited military engagement lessens the possibility of casualties (fortunately, the crew of the F-15 were reportedly rescued, unharmed) it makes for a tougher diplomatic challenge for the U.S. and its NATO allies.

Now that the Arab League - which originally called for the no-fly zone - becoming "a bit squeamish" since the bombings started on Saturday, the coalition has been damaged, Powell notes. "It was hugely reassuring for countries involved to have Arab backing. Now that that Arab backing is wavering considerably, it makes it feel a bit lonely and it arguably helps Col. Gadhafi's position."

In addition to the Arab League, the NATO coalition is facing diplomatic pressure from Russia, China and Brazil, which have each called for a cease-fire, while India has said there should be no foreign intervention in Libya, The New York Times reports.

Responding, perhaps, to such pressure, U.S. Defense Secretary Robert Gates said the fighting "should recede in the next few days" during a press conference in Moscow Tuesday.

The external diplomatic pressure and internal divisions within NATO over who is going to take the leadership role from the U.S. increases the prospects of Gadhafi remaining in power.

"Muammar Gadhafi can probably survive because the rebels are not well armed or well organized," Powell says. "If he's going to stand his ground; if he's determined to carry on the fight, I can't imagine this going on for months because the coalition could be begin to disintegrate and their aims are rather vague."

Uncertainty over Libya's future, in turn, is helping put upward pressure on oil prices. In New York futures trading, crude jumped above $104 per barrel on Tuesday, even as Libyan rebels control most of the nation's oil assets and announced the formation of a new national oil company.

Aaron Task is the host of Tech Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com