From The Telegraph:
“After last week’s bloody crackdown by the Egyptian army, fears of a disruption of oil supplies to the West have boosted the oil price. Brent crude prices were propelled to a four-month high of $111.23 on Thursday. If the turmoil gets worse – or unrest spreads to other countries – the risk premium currently factored into the price of crude is likely to increase further.
Egypt is not a major energy exporter, producing a nominal amount of the world’s oil and gas. The North African country appears at number 54 on the list of the world’s largest oil exporters, producing about 0.9pc of the world’s oil and 1.8pc of global natural gas supply.
However, Egypt plays a vital role in international energy markets through the operation of the Suez Canal and the Suez-Mediterranean (Sumed) pipeline. These are vital pieces of infrastructure in the global oil market.
Last year, about 7pc of all seaborne traded oil and 13pc of liquefied natural gas (LNG) travelled through the Suez Canal, according to data collected by the US Energy Information Administration (EIA).
The Suez Canal, a 101-mile link between the Red Sea and the Mediterranean, and the 200-mile Sumed pipeline are strategic routes for Persian Gulf oil and gas shipments to Europe and North America.
Closure of these two routes would add an estimated 2,700 miles of transit from Saudi Arabia to the United States around the Cape of Good Hope, increasing costs and shipping time.”
So far, commerce and shipment have not been affected. Let’s take a look at the major oil companies operating in Egypt, which could be affected in the case of a closure of the Suez Canal and the Sumed Pipeline.
“The largest player is BP, which produces about 15pc of the country’s oil and 30pc of its gas. ‘Operations and production are unaffected,’ a BP spokesman told Reuters after more than 500 people were killed last week in a security crackdown. ‘We are monitoring the security situation in the areas where we have offices. All our people are safe and accounted for.’
Royal Dutch Shell is also a major producer in the country. ‘To ensure the safety and security of our staff, Shell offices in Egypt are closed for business today and into the weekend, and business travel into the country has been restricted. We will continue to monitor the situation in Egypt,’ a Shell spokesman said on Friday.
However, perhaps the most exposed company to the country is BG Group. Egypt was the energy company’s largest producing country in 2012, delivering 20pc of the company’s total production.
BG’s production is also unaffected so far, but the group withdrew 100 expatriate staff and dependants last month. About half of the gas that Egypt produces is exported, with the rest servicing Egypt’s domestic market. This is one reason why sector watchers are hopeful that disruption will be minimal. Whoever holds political power will not want the lights to go off.”
The fact is Egypt’s economy is already showing signs of trouble.
From The Gulf Times:
“[…] The deadly army assault on Muslim Brotherhood sit-ins and the continuing violent protests against state apparatus have left Egypt’s $260bn economy on life support.
Here is a quick look at the immediate economic fallout. Swedish home-appliance maker Electrolux halted production in Egypt and the vast majority of its nearly 7,000 workforce are employed locally. Swedish mobile network provider Ericsson has imposed travel restrictions for its 700 staff in Egypt. Anglo-Dutch oil major Royal Dutch Shell’s offices were closed on Thursday into the weekend. US automaker General Motors closed its Cairo office on Thursday and halted production. GM employs 1,400 Egyptians. German chemicals group BASF, employing about 100 people, closed its Egyptian operations. Most of the firms, however, reopened yesterday under watchful eyes.
The $13bn tourism sector, already down by about 50% since the 2011 revolution, has been dealt a severe blow. US and European governments have warned tourists to stay away and some travel agents have stopped all trips to Egypt. A good number of holidaymakers from Qatar, mostly Egyptian expats, have cancelled their vacation plans in Egypt.
Now, the bigger picture. Egypt’s economy was growing at an annual 7% for several years before the 2011 uprising, before dropping to just 2% in the year after Hosni Mubarak was toppled and 2.3% over the nine months to March. The interim government runs a budget deficit hovering around $3.2bn a month and the country has financing needs of $33bn over the next 18 months. Foreign direct investment is down 75% since 2011. More than 4,500 factories have been shut, leaving hundreds of thousands unemployed in a nation where two-fifths of people live on the poverty line.
Ultimately it all boils down to the basic needs of the people: when people are starving, societies tend to unravel, no matter whether they are led by an autocrat or a democratic government. With food inflation around 20% at the moment, Egypt has less than two months’ supply of imported wheat left in reserves.”
Soaring prices and people going hungry are not things that nobody would love to see in its own country or community. Let’s pray that some calm and common sense prevails