Dice are rolling, the knives are out. Hosni Mubarak is still hanging on to power by a thread and the global oil market is on guard. The trend of North African and Middle Eastern discontent is having the market reassess risk, not only for oil but in the money markets as well.
Bloomberg News reports that, "Money-market rates in developing nations are increasing at the fastest pace since 2008 as central banks from China to Brazil lift borrowing costs and banks hoard cash on concern unrest in Egypt will destabilize the Middle East."
The risk for oil in the short run centers on the Suez Canal, but in reality it is the stability of the region that is the real story. The Suez Canal has moved as much as 1.8 million barrels of oil and products a day. The Wall Street Journal says, "Apart from oil, about 8% of the world's seaborne trade passes through the Suez canal, according to Egyptian government figures. Over the weekend, a dusk-to-dawn curfew across the country caused shippers operating in the canal to warn customers of potential delays. Canal traffic has continued unhindered throughout the protests. But if the violence in Egypt spreads to its oil-producing neighbors, crude prices will likely top $100 a barrel, which would dampen an economic recovery gaining momentum in many countries".
The Suez-Mediterranean, or Sumed, pipeline also transports about 1.1 million barrels a day of crude. The Wall Street Journal says that, "Closing the Suez Canal would force ships to seek other routes, adding about 10 days to the time it takes for Mideast oil to reach the U.S. and 18 days for the trip to Northern Europe. That alone would push up crude prices even if supplies were adequate due to emergency reserves around the world."
Why might that happen? Are opposition leaders unhappy with the U.S. and our perceived lack of support and could they try to send the U.S. a lesson by cutting off supply? The AFP reported that leading dissident Mohamed El Baradei said that the United States is, "losing credibility by the day" in calling for democracy in Egypt while continuing to support President Hosni Mubarak.
The other key is whether or not this is where the discontent stops. Oppressed people all over the Middle East are seeing how easy it is to take to the streets. Governments have to be really concerned about food prices. How this plays out, of course, will be the major factor determining oil and commodity prices.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.