First there was Tunisia, then Egypt, then Bahrain. Now Libya is being roiled with conflict. Middle East tensions continue to spread and the contagion has many worried. Why are we seeing all these revolts? Tensions in these parts have essentially simmered for years. All these countries are affected by a youthful and growing population, high youth unemployment and the introduction of electronic telecommunication networks that allow easy transmission of dissenting voices. For example:34 percent of the Algerian youth are unemployed.36 percent of Bahrain's newly minted graduates are jobless.51 percent of the youth in Libya are searching for something to do.64 percent of the Yemen's youth have zero job prospects and their water resources are dwindling quickly.These throngs of disenfranchised youths have nothing to lose and now with food inflation and water shortages they have simply had enough with their situations and their leaders.The question now, from a financial viewpoint, is what does all this mean for the oil market and the global economy?Libya's oil production equates to roughly 1.7 million barrels of oil per day about two percent of the world's daily output. This makes it the world's 12th largest exporter of oil.The good news is that this shortfall for the oil market can be overcome in the near term from a couple of sources. Most notably, Saudi Arabia has spare capacity of at least double Libya's entire production. In fact, Opec's 4.4 million barrels in daily spare production capacity (ex-Libya) is more than enough to offset any lost Libyan or Egyptian oil production, which totals 2.5 million barrels per day, according to the US Energy Information Administration.The second source is existing reserve stocks. In Italy, the largest importer of Libyan oil, reserves are available for about 90 days. These buffers may help in the near term but the longer term dynamics would not be addressed.The major worry, however, is that this turmoil could continue to spread through Northern Africa and the Middle East. These regions collectively are responsible for 38 percent of global energy supplies. If other oil producers are compromised in some way we could see a sustained cutback in production or increased delivery disruptions that could drive the price of oil much higher. Oil production disruptions in Iran, for example, would put 4.6 percent of global supplies at risk.A supply-driven oil shock, like the one that came in the 1973 oil embargo and the 1979 Iranian revolution, may derail the world's economic recovery and even push the global economy back into recession.Most economists seem to believe that oil prices would need to rise to at least $120 a barrel and remain sticky at that point to put a real dent in the recovery. Various economic models also seem to indicate that a $10 per barrel rise in crude prices reduces world economic growth by about 0.1-0.2 percent. Therefore small, gradual changes in energy prices are tolerable but if crude were to spike to $150 per barrel we are talking about a reduction in growth of about one percent, which could easily derail many fragile economic recoveries around the world.Market ImplicationsThe effect on financial markets from an oil price shock would likely be a deflationary event, similar to a large tax on corporate profitability. There would seem to be little chance that companies would be able to pass on the cost of higher prices or that workers would be able to achieve higher wages given the huge slack in the labour market. It would represent a massive margin shock for corporations and lead to reduction in the level of spending on goods and services for consumers.As an example, many estimates indicate that a 10 percent rise in gasoline prices would cost US consumers some $40 billion a year negating nearly all of the positive effects of the federal government's payroll tax cut.This would be negative for equity prices and eventually bullish for government bonds. In the month leading up to the recent July 2008 oil spike, the Dow Jones Industrial average fell about 10 percent, consumer stocks tanked 17 percent and industrial names dropped about 10 percent.It's also worth noting which countries would be net losers, based on who the major net exporters and net importers are. The US, China, Japan, Germany, India and Korea are the largest net oil importers in the world. They will likely suffer most in terms of negative growth impact on high oil. Outside of the Gulf region and other political hot spots, the biggest net exporters are Russia, Norway, Kazakhstan and Canada. On a relative basis, at least, these are the winners. It would be foolish at this stage to simply discount the oil price risks all together and one needs to at least accept that we should be more cautious.One thing this crisis does highlight overall, is the precarious state the world is in when it comes to relying on so much oil from regions of the world that are politically unstable.This should put a premium on oil supplies from more politically stable regions such as the Canadian oil sands and Brazil. It also gives credence to the desire to continue to diversify the energy picture away from oil into other forms of energy and renewable technologies. Investing in companies with large reserves in politically stable regions and/or companies involved in alternate energy systems would seem to be a very good strategy for part of your investing portfolio.Nathan Kowalski is the chief financial officer at Anchor Investment Management. He holds a Chartered Financial Analyst (CFA) designation and Chartered Accountant (CA) designation.