Egyptian crisis said to cause rise in oil, food prices

The standoff in Egypt and uncertainty about where it will lead is causing global economic jitters. It’s already pushing up the price of oil and food, and there’s no telling how long the turmoil will last.

The big worry is that popular uprisings and revolution will spread to Egypt’s rich autocratic neighbors who control much of the world’s oil supply.

How far will anti-government movements go? Will oil supplies be disrupted? Will the U.S. see its influence in the region decline and that of Iran and other fundamental Islamic regimes surge?

Right now, these are open questions. But there’s no question that the crisis has created new risks for still shaky world economies and put a cloud over world financial markets.

Instability in the Middle East, if prolonged, could jeopardize fragile recoveries in the United States and Europe. It could limit job creation and fuel inflation.

“If the turmoil is contained largely to Egypt, then the broader economic fallout will be marginal,” said Mark Zandi, chief economist at Moody’s Analytics. “Now, obviously, if it spills out of Egypt to other parts of the Middle East, the concern goes to a whole other darker level.”

“It is certainly now on my radar screen,” he said.

The situation remains tense after more than 10 days of street demonstrations as protesters demanding President Hosni Mubarak’s immediate resignation continue to skirmish with pro-Mubarak loyalists in the center of Cairo.

Such protests earlier brought down the government of Tunisia and have already spread in more modest ways to include Yemen and Jordan.

“The real worry, I think is if these protests continue indefinitely and there isn’t more reassurance about stability in Egypt and in the broader region,” said Shadi Hamid, a researcher on Gulf affairs at the Brookings Institution’s Doha Center in Qatar. “We’re going to see a continued decline in the regional economy and that will, of course, have an effect on the U.S. economy.”

Hamid suggested the Obama administration’s position of first supporting Mubarak and then upping the pressure on him to leave immediately was not helping the situation. “There is a real danger here that the Obama administration will be remembered as resisting change,” he said.

President Barack Obama said Friday he hoped Mubarak would focus on his legacy as Egypt’s leader for nearly three decades and “end up making the right decision” to step down. But Obama stopped short of calling on Mubarak to leave immediately.

Mubarak has said he will not run for re-election when his term expires in September, but that hasn’t satisfied protesters.

Although demonstrations at week’s end were more subdued than on Thursday, when the clashes were violent and hundreds were injured, the unrest already has had an impact on energy prices in the United States.

The average price for a gallon of regular gasoline in the U.S. was $3.12 on Friday — up 2.4 cents just in the past week. Analysts expect prices to stay above $3 a gallon — the highest since 2008 — and likely go even higher until the conflict in Egypt is resolved and tensions are eased in neighboring countries.

Oil prices have hovered at around $90 a barrel over the past week, with some analysts predicting the Egyptian crisis will lead to $100 per barrel prices sooner rather than later.

Traders worry the unrest might spread to oil-producing countries in the region and even affect shipments through the Suez Canal. Egypt is not a major oil producer, but it controls the canal and a nearby pipeline that together carry about 2 million barrels of oil a day from the Middle East to customers in Europe and the United States.

Several large Egyptian refineries near the canal have been the site of recent protests.

So far, traffic through the canal has been unimpeded. But it’s high on everybody’s worry list. It was blockaded by the Egyptian military for eight years after the 1967 war with Israel and shut briefly during the Suez crisis of 1956.

“I think the major fear regarding the Suez Canal revolves around the power vacuum that’s being created by this uprising,” said Jeff Sica, president of SicaWealth Management in Morristown, N.J. “The prospect for the Suez Canal being controlled by an unfriendly regime would further devastate the economy.”

The likelihood of the canal being shut or blockaded seems remote. It is a huge source of revenue for Egypt that the government will not want to lose, no matter who is in charge. Still, just the possibility could spook financial markets if tensions escalate.

Meanwhile, rising food prices helped fuel the popular uprising in Egypt, where most of the population is poor. And the turmoil there and unrest in Somalia and other Arab nations now appears to be driving food prices even higher.

Some nations in the region, including Saudi Arabia and Algeria, have indicated they may begin increasing their stockpiles of wheat and other grains.

Hoarding can lead to more hoarding, and political strife can accelerate the process. Egypt is the world’s largest importer of wheat.

Iranian leaders have much to gain from the Egyptian turmoil. Not only is Mubarak the most anti-Iranian of American allies, but rising oil prices have clear economic benefits to Tehran.

“Hundred dollar-a-barrel oil for the Iranians does a lot to take down the pain of the sanctions that we’re putting on them, so they must be sitting there rubbing their hands with glee at the moment,” said Martin Indyk, a former U.S. ambassador to Israel.
Source: AP

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