As Col. Muammar Qaddafi begins to lose control of his country to anti-government protesters, the Libyan dictator announced this week that he won’t go down without a fight. In a rambling speech on Tuesday, Qaddafi vowed to track down and kill protesters “house by house.” “I will fight on to the last drop of my blood,” he said. In fact, forces loyal to Qaddafi launched a counter offensive today, and to date, the unrest has already claimed hundreds — if not thousands — of lives.

President Obama yesterday condemned the Libyan government for of using violence to quell demonstrations and said he asked his team “to prepare the full range of options that we have to respond to this crisis.” But unlike with U.S. allies Bahrain and Egypt, the White House has limited options to assert much leverage with the Libyan government. While some rights groups have offered ideas on how to positively influence the situation, CAP’s John Norris and Sarah Margon note that the White House “needs to convince Libyan business leaders that Qaddafi is a liability they can no longer afford” and since Libya is Africa’s largest oil producing country, a good place to start would be the oil industry:

One doesn’t normally look to oil companies to do the right thing. But they now have an enormous vested interest in helping push Qaddafi out. Libya has Africa’s largest crude oil reserves and the uncertainty in that country has already started to rattle markets. If Qaddafi stays on his current course and remains Libya’s leader, there will invariably be calls for an oil embargo from Libya, a proper U.N. war crimes investigation, and possibly a civil war. The oil business will be disrupted for a considerable period under all of those scenarios.

The situation in Libya “has been the immediate cause for the spike in oil prices recently” and the industry is worried about greater negative effects on the oil markets. But Qaddafi doesn’t appear to be concerned about markets, let alone his own people. In addition to promising all out war with anti-government demonstrators in order to maintain power, he has also reportedly ordered his security forces to institute an if-all-else-fails-slash-and-burn policy — starting with Libya’s oil, as Time Magazine reports:

There’s been virtually no reliable information coming out of Tripoli, but a source close to the Gaddafi regime I did manage to get hold of told me the already terrible situation in Libya will get much worse. Among other things, Gaddafi has ordered security services to start sabotaging oil facilities. They will start by blowing up several oil pipelines, cutting off flow to Mediterranean ports. The sabotage, according to the insider, is meant to serve as a message to Libya’s rebellious tribes: It’s either me or chaos.

While Libya produces only 2 percent of the world’s oil supply, most of its exports go to Europe, which would be directly effected by any more turmoil in the industry. But oil is a world commodity, and the rest of the world, including the United States, is still “addicted to oil” and thus is “not immune to the price shock waves.”

Read more about the situation in Libya in today’s Progress Report.

Michael Slackman of the New York Times penned a front page story arguing that the slew of popular revolts are strengthening Iran in the region. Iran analysts Flynt and Hillary Mann Leverett have also adopted this view. But the premise seems to rest on a crude “the enemy of my enemy is my friend” logic that posits that because the protests are removing and unsettling adversaries of Iran ergo Iran is the big winner. But in fact, Iran is likely going to be a loser in the region as the result of the protests.

Slackman writes:

The popular revolts shaking the Arab world have begun to shift the balance of power in the region, bolstering Iran’s position while weakening and unnerving its rival, Saudi Arabia, regional experts said… Saudi Arabia, an American ally and a Sunni nation that jousts with Shiite Iran for regional influence, has been shaken… The uprisings are driven by domestic concerns. But they have already shredded a regional paradigm in which a trio of states aligned with the West supported engaging Israel and containing Israel’s enemies, including Hamas and Hezbollah, experts said. The pro-engagement camp of Egypt, Jordan and Saudi Arabia is now in tatters.

It is no doubt the case that Saudi Arabia has been shaken and the previous regional paradigm, noted above by Slackman, is in tatters. But this is not because of anything done by Iran. It is because of the emergence of liberal popular revolts and the potential reemergence of Egypt as the focal point of the region.

What we could be seeing is the rise of a third paradigm – a more liberal paradigm embodied by Egypt that will diminish the influence of not just Saudi Arabia, but of Iran as well. While a democratic outcome in Egypt, Tunisia, and Libya and elsewhere is far from certain, the popular revolts were clearly liberal revolts and have provided a new model for the region. Egypt is the largest Arab country and has long been a regional trend setter. With a new popularly elected government in Cairo, Egypt will likely be much more influential than the Mubarak regime in Middle East affairs. This combined with the fact that it is largely a Sunni-Arab country, while Iran is largely Shia-Persian, Iran will likely lose some influence to Egypt.

One of Iran’s main assets in the region has been unique political system. Iran was the one country in the region to overthrow a Western-backed dictator and was able to set up a quasi-democratic Islamic government that was, after Israel, the most democratic in the Middle East and seemed to provide its people with a degree of accountability rare in the region. Arabs living in repressive Western-backed authoritarian countries like Egypt could look to Iran as a source of inspiration, giving Iran an air of moral authority. In the last two years this moral authority has collapsed. The repression of the Green Movement has severely undercut the appeal of the Iranian model and has made Iran seem little different than other repressive regimes in the region. Iran’s appeal was therefore weakened before the popular revolts. Following the revolts, few are looking to the Iranian model for inspiration. Tehran is so 1979. Cairo is 2011. The Arab Street has a new model for transformation and it is in Cairo and Tunis not Tehran.

The other aspect of Iran’s appeal has been its anti-Israel stance. Its support of Hamas and Hezbollah, its rhetoric, and its nuclear program have positioned Iran as the major adversary of Israel in the region. On the Arab street, when regimes, like Mubarak, were “selling out” the Palestinians by either making peace or failing to challenge Israel, Iran positioned itself as the leading resistance leader. But following the popular revolts, the focus will no longer center on Tehran and Tel Aviv, but between Cairo and Tel Aviv. In fact, it is quite plausible to envision a scenario in which a less adversarial middle road opposition to Israel emerges out of Cairo that would stand in stark contrast to the stance of Iran. The Egyptian army has pledged not to tear up the peace treaty with Israel and there seems little desire for direct conflict. Yet a new popularly elected Egyptian government would also likely seek to place more pressure on Israel.

For Israel, this will no doubt prompt concern, since going from Mubarak, who was outwardly friendly to Israel, to a new government that will likely be at least somewhat more oppositional will likely put increased pressure on them. The new governments to emerge may also be much less pro-American than the ones that came before. But while Israel, and perhaps the US, might view this development negatively, when viewing through the lens of who has more influence in the region, it seems clear that Iran will now share the stage with Egypt as the focal point for relations with Israel.

Of course, all of this is conjecture. We have no idea how the transition will unfold in Cairo. But there is just as of a much reason, if not more, to believe Iran will be weakened, not strengthened by the popular uprisings.