Thursday, February 10, 2011

Egypt: Defense Analysts - Unrest in Egypt and Suez Canal Could Have Major Economic Impact

Source: Al Madar

Defense analysts agree that the Egyptian uprising against Hosni Mubarak does not yet threaten the Suez Canal, which remains essential to U.S. energy security. While Egypt is not among the region's oil producing nations, if the Mubarak regime is replaced by a strongly anti-American regime, access to the Suez Canal could hypothetically be restricted to tanker ships en route to energy markets in the United States. This would redirect American-bound oil tankers to a perilous 6-8 week trek around the Horn of Africa.

In recent years, piracy has been a threat to ships on the East Coast of Africa, particularly around Somalia and Madagascar. POLITICO reported yesterday that restricting the Suez Canal to U.S.-bound oil takers would cause oil prices worldwide to rise to over $120 per barrel. This, in turn, would cause prices paid at the pump by already cash-strapped American consumers to surpass $4 per barrel.

Last week, former-Senator Judd Gregg, a supposed expert on the region, told POLITICO that "there is going to be tremendous instability in Egypt for the foreseeable future." Nobody seems to disagree, particularly in energy markets where crude oil futures have until very recently been on a dramatic upswing throughout the crises in Egypt and Tunisia.

In effect, the concerns arising from the Egyptian political crisis, centered on the importance of the Suez Canal and the Suez-Mediterranean oil pipeline (SUMED) for oil supplies, have already been factored in the market's view of oil prices. According to Alexander Mirtchev, Vice-President of the Royal United Services Institute for Defense and Security Studies in London, "oil prices have been reflecting the turmoil in Egypt from their very start. What is still undetermined is to what extent these events affect regimes in the major oil exporting countries of the region down the line. The potential for instability in the region and Egypt's key position there is what's raising the hackles of the market." He indicated that even should popular uprising not multiply, it could be anticipated that governments in the Greater Middle East would give due consideration to such a possibility and undertake measures that would in turn have broader geopolitical and geo-economic repercussions, including on the overall oil supply equation.