There are two ways to look at the street fights unfolding in Cairo and other Middle Eastern capitals: As the inevitable spread of freedom and democracy to pockets of the world long run by iron-fisted monarchs and strongmen. Or, and possibly also, as the beginning of the end of a Western economic recovery, since chaos in oil-producing nations brings with it energy instability. Couple that with inflation created by central bank printing presses, and you could easily end up with much, much higher oil prices

Oil already had been on a tear since September, with some analysts fearing $110 a barrel prices soon and commodity guru Jim Rogers telling anyone and everyone to get ready for $200 a barrel.

Nevertheless, prices fell back to around $85 after ratings agencies cut Japan and warned the United States on its debt. The fear is that rising interest rates will choke off the nascent global recovery, stunting demand for oil.

As the violence continued, Egyptian stocks have fallen sharply, down 10.5 percent on Thursday. The cost to insure sovereign debt across the region has pushed higher, Reuters reported, in Egypt, Israel, Tunisia, Morocco, and Turkey.

"We have to look closely at the political situation in Egypt, because it's clearly having a negative impact on all the area," Gaelle Blanchard, emerging markets strategist at Societe Generale, told Reuters.

Pro-democracy leader Mohamed ElBaradei, better known in the West as the former director general of the International Atomic Energy Agency, joined the street protests in Friday as riot police worked to beat back the biggest protests in three decades in Cairo. ElBaradei is considered a contender to unseat longtime Egyptian President Hosni Mubarak.

Oil peaked over $140 a barrel right before the economic crisis began, then fall straight down to the mid-$30 range in the financial panic that ensued.

No matter what happens in the Middle East, rising gas taxes imposed by broke U.S. local governments threaten to push up oil prices anyway, warn JPMorgan analysts. States face billions in budget shortfalls and have few places to get that money without raising income or property taxes directly.

For now, however, optimism reigns among U.S. banks and government leaders. Stocks have touched a psychologically important level at 12,000 on the Dow and the flow of bad news — in housing, jobs, and the enormous federal deficit — seems to be balanced against the feeling that U.S. growth has been unfairly discounted by investors.

Treasury Secretary Tim Geithner, for one, believes that a U.S. recovery is well under way, although he admits that jobs are slower in appearing than after past recessions. A consensus of economists now believe that the United States will grow between 3 percent and 4 percent in 2011, he pointed out.

The economy grew at a 3.2 percent annual rate in last quarter of 2010, according to the Commerce Department, below the 3.5 percent expected by some economists.

For the year, growth reached 2.9 percent, the biggest gain since 2005. The U.S. economy actually shrank by 2.6 percent in 2009 as the recession unfolded.

"There's more confidence that we're going to avoid slipping back into recession. I think that confidence is justified," Geithner said at the World Economic Forum in Davos, Switzerland.

Stocks have roared up more than 83 percent from the lows of March 2009 but now are too high, according to Robert Shiller, the Yale University professor who co-created the closely watched S&P/Case-Shiller Home Price Indices.

Stocks have broken above 12,000, a point not reach since June 2008 as the crisis began in earnest.

“I would say the market is overpriced based on fundamentals . . . I'm talking about the U.S. and probably Europe," Shiller told CNBC.

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