Feb. 22 (Bloomberg) -- Libyan leader Muammar Qaddafi vowed to fight a growing rebellion until his "last drop of blood," pledged to deploy the army and police tomorrow to impose order, and called on supporters to reclaim the streets.

Continued protests "will lead to civil war," Qaddafi said, speaking from the house in the capital, Tripoli, where he was targeted by U.S. bombs in 1986 that killed his adopted daughter. He called the rebels "rats" and "microbes," and said they will face death penalties for taking up arms against the state in an uprising whose "masterminds" are abroad.

Qaddafi's crackdown on a weeklong uprising has already left more than 200 dead, according to Human Rights Watch, and driven oil prices to a 2 1/2-year high. In Benghazi, the independence flag of the constitutional monarchy overthrown by Qaddafi in 1969 flew on streets and over several buildings and there were no security forces in evidence except traffic police, witnesses said. In Tripoli, bodies are still in the streets after an attack on protesters by pro-Qaddafi gunmen, the opposition National Front for the Salvation of Libya said.

Libya, holder of Africa's largest oil reserves, is the latest nation to be rocked by protests ignited by last month's ouster of Tunisia's president and fanned by the Feb. 11 fall of Egyptian President Hosni Mubarak. While violent unrest has also spread to Bahrain, Iran and Yemen, none of those regimes has used as much force to quell protesters as Libya.

'Time to Intervene'

"Qaddafi has unequivocally declared his intention to massacre his own people," said Shadi Hamid, director of research at the Brookings Doha Center in Qatar. "Time for the international community to intervene. For starters, NATO should enforce a no-fly zone over Libya."

David Fuller's view There is a detachment from reality in all this and I would have thought that Qaddafi's position was untenable. However it presumably depends on how many people in the government, military and security services are still willing to take his orders. Meanwhile, I would have thought Qaddafi is running out of foreign locations to which he can safely buy his way into.

What about the markets in all this?

Following the initial shock, markets generally remain robust in the face of political dramas, however tragic and traumatic events may be for those directly involved. Financial crises with a global reach have a much greater impact on markets because they are considerably more likely to undermine corporate profits.

However, in the current circumstances the spike in crude oil prices is clearly a major concern. Investors will also extrapolate the trend until they see evidence that it is abating. Were it to continue beyond the very short term, it would certainly be a game changing event. Also, uprisings in the Middle East have caught Wall Street when it was on a recovery high and due for some mean reversion towards its medium-term trend approximated by the rising 200-day moving average.