The ongoing anti-government protests in Egypt pose no immediate danger to the world’s oil supply and the global economy is unlikely to face another oil price shock that could derail economic recovery and trigger a worldwide inflation outbreak.
Investors have been fearing that the Suez Canal, under Egypt’s strategic control, could be seized or disrupted by protesters with anti-West sentiments, choking off global trade.
This week, however, International Energy Agency chief economist Fatih Birol was quoted by financial news agency Bloomberg as assuring investors that there was “no real threat” to flows that pass through the canal, a strategic trade route that handles about 8% of global sea-borne trade.
The canal and the adjacent Suez-Mediterranean Pipeline also handle about 2.5% of the world’s oil trade, mainly between the Middle East and Europe.
“We hope to see the market calm down because it is not good news for anybody in the market: consumers, producers or anybody,” Bloomberg quoted Birol as saying.
However, he warned that oil prices, now at $100 a barrel (about R700), were detrimental to economic recovery in the US and Europe, the two biggest markets in the world.
More than 300 people have been killed since the outbreak of the political protests in Egypt last week, aimed at ending President Hosni Mubarak’s 30-year rule.
Shipping through the Suez Canal has not yet been disrupted but a fresh bout of violent clashes on Thursday between pro-democracy protesters and supporters of Mubarak pushed prices above $103 a barrel for Brent crude.
Oil prices are more than 8% higher than they were before the protests erupted last week.
In 1956 the Suez Canal was nationalised by former Egyptian president Abdel Nasser, sparking a war with Britain, France and Israel.
At more than $100 a barrel, oil prices could push inflation higher, triggering interest rate hikes by central banks across the globe. Higher interest rates will hurt consumer spending and the global economy, which is yet to fully recover from the economic recession.
Peter Draper, a senior research fellow at the SA Institute of International Affairs, said he did not see oil markets being disrupted in the short term by the turmoil in Egypt.
He saw the Egyptian military playing a major role in the political transition from the Mubarak-era to a democratic outcome, which at this stage is uncertain since political opposition groups were repressed in Egypt, with the Muslim Brotherhood bearing the brunt of the repression.
“In the medium term nobody knows how this will play itself out. There are no strong political groups in Egypt and nobody knows who will step in once Mubarak has gone,” Draper said.
Paul Kruger, a researcher at the Trade Law Centre for Southern Africa, saw no major threat to the world economy as Egypt was no economic powerhouse or big oil exporter.
“The impact of the crisis will be insignificant because Egypt is not a major oil producer. The world will continue to trade despite what is happening in Egypt,” Kruger said.
Egypt holds about 0.3% of the world’s crude oil reserves.
Another concern causing nervousness in oil markets is that the political unrest in Egypt could spread to other Arab nations, especially oil exporters such as Saudi Arabia, which is ruled by the iron-fisted dictator, King Abdullah.
The Egyptian unrest was sparked by a revolt in Tunisia that forced long-time ruler Zine El Abidine Ben Ali into exile in January.
This week another Arab nation, Jordan, announced regime change following protests this past week.
Jordanian ruler King Abdullah II asked Marouf Bakhit to form a new government after Samir Rifai resigned. Now there are fears that other Arab nations – Syria, Yemen, and Saudi Arabia, the world’s biggest oil producer – could also face unrest.