The UN Security Council just voted for implementing a no-fly zone in Libya and for authorizing air strikes against the forces of Gaddafi. This will have consequences for oil, the US dollar, the Japanese yen and the Swiss Franc. Update on this important geo-political development.
10 members voted for the decision, and 5 abstained. The members voiced an effort to save civilian lives in the face of massive violence by the regime against protesters.
From this moment onwards, French and British war planes are expected to strike Muammar Gadaffi’s forces that are surrounding the rebel capital of Benghazi. Apart from the UK and France, which have pushed for intervention, also the US, the UAE and Qatar are likely to participate in the bombing. 
This is a last minute effort to stop Gaddafi. About two weeks ago, it seemed that Gaddafi has lost, but the tables have turned, and his forces managed to conquer more and more land from the opposition. The battles around the oil rich city of Ras Lanuf disrupted oil supply, and also were decisive for the whole war.
At this moment, Western and Arab air strikes can stop Gaddafi, but not turn the whole war in favor of of the rebels. What’s certain, is that the introduction of external aid to the opposition in Benghazi means that the unstable situation will prevail.
And this means strength for oil and weakness for the dollar.
Following the devastating earthquake in Japan, the price WTI Crude Oil fell below $97. It already reached $106 when the world focused on the civil war in Libya and the Saudi day of rage.
Following the awakening of the West to act in Libya, and the understanding that abandonment of nuclear power means more consumption of oil, WTI began rising gradually and reached $101.50 before the vote.
Libya produces a small quantity of oil, but it’s proximity to Europe and the high quality of the crude rocked the markets. Apart from oil, the Japanese yen enjoyed safe haven flows, as well as the Swiss franc. USD/CHF now trades just under 0.90, after already touching 0.89.
After the huge USD/JPY avalanche yesterday, Dollar/Yen stabilized just above 79, still far below the previous historic low of 79.75. A big coordinated intervention is now discussed. This decision by the UN might weigh on the pair, and make an intervention harder.
USD/CHF is expected to further fall, and oil prices are expected to continue higher, but all depends on the developments on the ground.
Further reading: USD/JPY Forecast.
