Trouble in Egypt began brewing last Tuesday when thousands of protesters celebrated National Police Day by gathering around Tahrir Square in Cairo to ask for the resignation of the longest-serving President of Egypt, Hosni Mubarak.
Inspired by the recent uprising in Tunisia, Egypt’s citizens are protesting against poverty, repression, rigged elections, and high unemployment, to name a few.
Word of the demonstration got around the world media, and the number of protesters soared. People started throwing rocks like they were in Cyclopip’s backyard.
They didn’t stop even when Mubarak sacked his cabinet, appointed his first-ever Vice President, and named a new Prime Minister, Ahmed Shafiq.
In fact, protests got so rowdy that the government implemented a few restrictive measures like curfews and media blackouts. Heck, they even shut down the interwebs!Maybe that’s one of the things that made its citizens so outraged that not even the police observed the curfew, and the government had to ease up on its media ban.
Today, after days of protests, the looting, rock-throwing, tear gas-bombing, and water cannon-spraying have toned down. Concerns on political instability, on the other hand, have yet to ease in the global markets.
You see, the violent scenes in Egypt remind markets too much of the 1979 Revolution in Iran when the geopolitical risk doubled oil prices and plunged global economic output.
Although Egypt isn’t a major oil producer, market participants are getting jittery about the possible effects of political unrest with Egypt’s neighboring countries, such as Jordan, Yemen, or Saudi Arabia. After all, the Middle East is the hub of oil production in the world, and conflict in the region could disrupt the global oil supply.
On top of that, Egypt holds the keys to the Suez Canal and the Suez-Mediterranean pipeline, which are used to transport over 2 million barrels of oil to the rest of the world.
Maybe it’s just me, but more riots in the Middle East and a possible shutdown of the Suez Canal don’t sound good for oil supply!
If you’ve been a diligent student in your Economics 101 just like I was (not too long ago, I might add), you’d know that a decrease in supply generally drives prices higher. In fact, investors have already priced in this possible drop in oil supply since crude oil futures already jumped above the $100/barrel level last Monday.
All you awesome kids who have gone through our School of Pipsology probably know that since Canada is one of the top oil producers in the world, the Canadian dollar usually benefits when the price of oil increases. Remember that consumers will have to exchange their money for some Loonies in order to acquire the black crack.
And it’s not only the comdoll that stands to benefit from the ruckus! This may also be bullish for the euro and the pound gave that the rise in oil prices could translate to higher inflation, which has become one of the concerns of the ECB and BOE.
Of course, let’s not forget that political instability and investor confidence don’t go well together. If risk aversion kicks in, the Greenback’s safe-haven status could be highlighted and could send the currency scurrying up the charts.