Libyan oil output plummeted 75 percent or 1.2 million barrels, sending Brent oil prices to around $120 a barrel, as speculators wagered Persian Gulf producers will be next in the turmoil rocking some Middle Eastern countries.

But while oil producers and analysts are blaming speculators for the oil price hike, southern European countries are increasingly concerned about security of supply, not over disruption that can be easily offset with emergency reserves that can last for months, long after OPEC raises its production.

Libyan exports only account for 2 percent of world supply, and some estimates suggest that OPEC countries have a 5 million bpd spare capacity, more three times bigger than Libya’s total exports. (Others think the excess capacity is a lot less.)

The 5 million bpd estimate was handed down by ENI Chief Executive Paolo Scaroni. The company is the biggest producer in Libya, which pumps 1.7 million barrels a day in 2010, according to an International Energy Agency report released this month.

“Naturally there is speculation which is amplifying a real phenomenon. The real phenomenon is there are 1.2 million barrels less on the market which is not a huge thing, but it is something and there is also a sense of general uncertainty in the region which can be the trigger for speculation,” Scaroni said in Rome.

Strongman Muammar Qaddafi’s threatened to blow up energy pipelines, which according to some reports is already taking place, especially with the eastern half home of much of the oil production, reportedly in hands of rebels.

Italy and Spain in 2010 imported from Libya as much as 22% and 13% of their crude, according to the IEA report. France and Austria are exposed to a lesser degree. Southern European countries turned to Libya to diversify their gas and oil supplies away from Russia and the Middle East, namely Iran.

Libya holds Africa’s biggest proven reserves, even if its production is the continent’s third biggest due to years of neglect. Analyst fear that neglect could return with this new crisis and current regional upheaval will likely prompt some European countries to reassess their strategy, even if Libya’s civil unrest ends with a peaceful resignation of Qadaffi.

“Europe has to choose between becoming more dependent on Russia or the Middle East, or both,” said Herman Franssen, senior associate in the Center for Strategic and International Studies, Middle East energy expert and former chief economist of the International Energy Agency.

“There are not many places where you can get perfect substitute for Libyan oil,” which is very high quality. “Europe is trying to diversify as much as it can, but the places they can diversify to are places they don’t want to turn to,” Mr. Franssen said.

“Because of what is happening in Middle East, Europe says Russia is the lesser evil in terms of security of supply,” said Manouchehr Takin, senior petroleum analyst in the London-based Centre for Global Energy Studies.

A wrong bet

ENI and Spain’s Repsol are Libya’s biggest producers and are the most exposed. Together, ENI and Repsol account for about a third of the oil output and most of the gas.

Austria’s OMV is in much worse shape, with 12% of its oil production coming from Libya, compared to less than 4% of Repsol. Other companies, like Total, BP, Royal Dutch Shell, Statoil and Gazprom have smaller exposure to Libya.

In terms of overall imports, besides Italy and Spain, 23% of Ireland’s imports come from Libya, 21% of Austria’s, 11% of Portugal’s, and 16% of France’s, according to the IEA report.

Italy, Libya’s former colonial power, also imports 13% of its gas from its Mediterranean neighbor. “Libyan gas can only be substituted with Russian gas, and Russia will be happy to do it,” Franssen said.

Many scenarios, few choices

“Bottom line is that this is the very definition of a security of supply, of an energy security issue,” said David Kirsch, a Washington-based manager of market intelligence service in PFC Energy, a consultancy. “The main impact is when do conditions allow the return to normal conditions. It becomes a question of how scenarios play out. If it goes to civil war, of course you will delay any investment plans. Political environment is

a critical factor. Companies will reassess and look elsewhere.”

There are few options though, especially as demand increases in Asia and global surplus capacity decreases, even in Iran and Russia, where the political price is also an issue.

“Security of supply will be enforced with greater urgency. They will find other sources other than North Africa and the Middle East, like Norway and the Arctic,” said Takin.

“They have options. They’ll subsidize more shale gas exploration, invest more in renewable, research alternative transport options, look to Brazil or the Far East, increase efficiency and conservation, restrict fuel consumption, encourage biofuels.”