SAN FRANCISCO (MarketWatch) — The iron fist that Col. Moammar Gadhafi wielded over Libya for four decades is closer to end as rebel forces flooded Tripoli over the weekend, but the world may still be far from meaningful exports of the North African country’s coveted light, sweet oil blend.

How much oil, and how soon it will flow, hinges mainly on the extent of the damage Libya’s oil installations suffered during the six-month conflict, analysts said. Some also worried a wounded Gadhafi could pursue a “scorched earth” policy, doing further damage to the industry.

Libyan rebel fighters celebrate as they drive through Tripoli on Monday. Reuters

The Brent blend, Europe’s benchmark crude oil, declined Monday as investors hoped at least some of Libya’s production would be back on line with the imminent end of the Gadhafi regime.

West Texas Intermediate, the New York-traded benchmark oil, settled higher, in part due to investors unwinding their long Brent, short WTI bets. Read more about oil markets.

Libya produced around 1.6 million barrels of oil a day before the uprising began six months ago. Of these, about 1.3 million was exported, mainly to refineries in southern Europe. Exporting ground to a virtual halt during the conflict, as forces loyal to Gadhafi and rebels fought for control over pipelines, ports and other key oil installations.

“There have been reports of some damage but not a great deal of damage,” said Matt Smith, oil analyst with Summit Energy in Kentucky.

Markets have struggled to find a replacement for Libyan oil, as most additional output from fellow members of the Organization of the Petroleum Exporting Countries consisted of a harder and more expensive to refine oil blend that not all refineries were equipped to handle.

To get at least some oil flowing out of Libya could take as little as one month, although the full-on 1.6 million barrels of production as before will likely take much longer.

“It is really going to depend on how coordinated and organized” a new Libyan government would be, Smith said. Presumably the first barrels to flow would be used for domestic consumption, so Europe is likely ways from any respite, he added.

Further downside for Brent?

With the end of Gadhafi’s regime in sight, the difference between Brent and WTI prices will contract further, said Steven Schork, with The Schork Group in Philadelphia.

The spread between the two benchmarks widened to a record earlier this year, with talk of WTI being dethroned as the world’s benchmark contract — and, by extension, as the main focus of interest for investors and the holdings of exchange-traded funds such as the United States Oil Fund USO, +2.13% .

Libyan oil coming back online is unlikely to revert that loss of status, Schork said. “It is going to be years before WTI assumes a benchmark role as it were,” he said.

Rebels reach the finish line

WTI — lighter and “sweeter” and thus less costly to refine into gasoline and other higher-value energy products — had historically traded a couple of dollars per barrel higher than Brent, the North Sea blend traded on London’s ICE Futures Exchange.

Ongoing supply constraints have tarnished WTI’s stutus. Of foremost concern is a supply glut in Cushing, Okla., the delivery point for Nymex oil. Additional pipelines designed to alleviate the bottleneck are still years from construction, continuing to pressure WTI prices.

Brent has also been nimbler to respond to geopolitical concerns, and therefore regarded nowadays as a better barometer of market conditions.

As for Libya, it sits atop Africa’s largest proven oil reserves but ranks behind Nigeria, Algeria and other African countries in terms of exports because much of its industry was underdeveloped and aging.

Libya also depends heavily on foreign expertise and foreign workers to keep its pipelines humming. Some degree of political stability will be needed to lure companies and workers back.

Production peaked at 3 million barrels in the 1960s, according to the U.S. Department of Energy’s Energy Information Administration. Nearly 90% of the exported Libyan oil went to Italy, Germany, France and Spain, the EIA said.

Libya is “completely dependent” on oil exports, and resuming the flow will be of foremost importance for any new government, analysts at IHS Energy said in a note.

Several international oil companies with assets in the country are reportedly on standby to help launch repairs to pipelines, export facilities and refineries, they said.

Even in a “relatively smooth” government transition, however, analysts at Nomura said they “see little prospect of oil output returning to its pre-crisis levels until 2013 at the earliest.”

It is “by no means certain who will take immediate control in Tripoli and the extent to which their writ will extend nationally,” they said in a research report.

The National Transitional Council, the main rebel organization, appears to be “far from homogeneous,” which has sparked concerns about infighting “highlighted by the still unexplained murder of rebel commander General Abdel Fattah Younis last month,” they added.