The Dow could rally as much as 1,000 points, Cramer said Monday, as soon as Libyan leader Muammar Gaddafi loses power.

Until the Libyan unrest is resolved, though, Cramer thinks oil prices will continue to climb. The "Mad Money" host said there's a strong possibility oil could soon soar to $147 a barrel, the same level at which oil peaked in 2008. Should that happen, companies would likely cut estimates, sending stocks lower. It seems the markets are being held hostage to Gaddafi and the Middle East, Cramer said, but we've seen it before.

In fall 1990, Iraq invaded Kuwait. Stocks rallied on every rumor — that Iraqi leader Saddam Hussein was going to pull out of Iraq, for example, or that there was an internal revolt in Iraq. When these rumors proved not to be true, stocks fell. On Monday, stocks rallied on reports Gaddi planned to leave Libya. The market fell when it learned the news was bogus.

How do we break this pattern? Like Saddam, Gaddafi is unlikely to willingly leave power on his own. Cramer hopes NATO, or another military force will stand up to him. Meanwhile, he wants the U.S. government to sell oil futures, preferably the July contract. Then, the U.S. government should form an alliance with the kings of Bahrain and Saudi Arabia. Cramer thinks these things are within reach, but said it will require action on behalf of President Barack Obama.

In 1990, Cramer said it was foolish to chase the rallies, but even more foolish to get out of the game. After all, when the U.S. came to the rescue, the markets rallied hard. With so much uncertainty, Cramer recommends staying cautious, but not too negative.