Unrest in Egypt Confined to Politics, Not Oil

Transportation FOXBusiness

Chaos may rule the day in Tahrir Square in Cairo, but no such turmoil exists near the Suez Canal and at other nearby oil arteries.

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Egyptian military authorities have reportedly beefed up security at strategic points along the canal and also along the critical Suez-Mediterranean (Su-Med) oil pipeline.

After more than a week of sometimes violent protests seeking the ouster of authoritarian President Hosni Mubarek, the impact on oil flowing through Egypt has been negligible.

“On the brighter side of the economic picture, recent reports indicate that activity at the Suez Canal has not been impacted and security there has been bolstered, which is a positive sign for trade through the canal,” IHS Global Insight, an economic research firm, said in notes released Thursday.

In the immediate aftermath of the first demonstrations last week, the threat of disruptions on the Suez Canal or an outright closure seemed very real.

Commodities expert Kevin Kerr told FOXBusiness.com late last week that the unrest posed a real threat to the free flow of traffic in the canal, and that any disruptions to the flow of oil would cause a bottleneck with potentially “disastrous results.”

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His concern was warranted: nearly 5% of global oil supplies pass through either the Suez Canal and the Su-Med oil pipeline, which translates to some two million barrels of oil products each day.

Eri Nikolai Stavseth, an analyst at Arctic Securities in Oslo, said that a disruption to the Su-Med pipeline would likely have a greater impact on global oil prices than a slowdown or shutdown of the Suez Canal. The Su-Med is used to transport oil from large tankers too big to pass through the canal to empty tankers waiting off the coast of Egypt.

The Suez Canal, meanwhile, is also a key passage for natural gas shipments to the U.S. An estimated 14% of the world’s natural gas is shipped through the canal.

At the very least, disruptions to either of these transport arteries would delay deliveries of oil and natural gas for more than two weeks because the travel time around the southern tip of Africa for a supertanker full of cargo is usually about 16 days.

The threat of disruptions seems to have diminished in recent days, however, and following an initial uptick late last week as images of protesters filled television screens around the world, the price of crude oil has stabilized.

Oil was down recently 11 cents a barrel to $90.43, after falling 32 cents on Thursday as traders responded to a rally in the value of the U.S. dollar rather than focusing on the ongoing turmoil in Egypt. Traders aren’t ignoring Egypt -- instead it is one of several factors currently driving the price of oil.

IHS Global noted that Egypt’s “oil and gas industry has continued to operate normally amid the anti-government protests and increased political unrest, with, importantly, no disruptions to the Suez-Mediterranean pipeline.”

Meanwhile, Reuters has reported that Gen James Mattis, head of the U.S. Central Command for the region that includes Egypt and the Suez Canal, believes any threat to the canal is purely “hypothetical.”

“Were it to happen, obviously, we would have to deal with it diplomatically, economically, militarily, whatever, but that to me is a hypothetical,” he reportedly told a group in London earlier this week.

Goldman Sachs (GS) is also taking a cautiously optimistic approach to the impact of the political turmoil on global energy prices, saying in a note that if the unrest spreads to Middle Eastern countries that produce more oil than Egypt -- Saudi Arabia, for instance -- “it would certainly send prices sharply higher.”

“However, we see this risk as low at this stage,” Goldman concluded.

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