Beyond the Suez Canal
The current events in Egypt have caused worries worldwide. Since protesters got attacked by President Mubarak’s supporters, Egypt could find itself on the verge of a civil war if the government fails to compromise with the protesters and violence escalates.In this case, the entire Middle East could be destabilized within days and trigger a number of serious conflicts within the region. Israel would find itself in a highly difficult situation, as a major supporter in the region would be lost at least temporarily. Other Arab countries where authoritarian regimes have been in power for decades could see uprisings of a similar scale. At the end of a series of violent shakeups in the region, we might see a new Middle East which might be more democratic and peaceful. However, the opposite could come true as well.
Economically, the impact of the crisis could be huge. As the New York Times reported on Thursday, more than two million barrels of oil are being shipped through the Suez Canal every day which is approximately 4.5% of world oil production.
The Suez Canal which links the Mediterranean to the Red Sea is traveled by 81 vessels per day on their way from Europe to Asia or the other way around, according to the Suez Canal Authority. The Strait of Hormuz, located between Iran and the Untied Arab Emirates is the only passage for tankers out of the oil-rich Persian Gulf through which roughly 40% of the world’s oil is shipped, and the Strait of Malacca between Malaysia and Indonesia is another vital shipping lane on which around 25% of seaborne oil shipping is carried out every day. These three strategically important waterways are crucial to the well-being of the world economy, as a disruption of shipping traffic would have terrible effects on global oil prices and oil supply.
Since the crisis in Egypt broke out, oil prices broke through the $100 a barrel ceiling for the first time since fall 2008 and are likely to stay high or even go up further. There are concerns that an escalation of the protests might prompt the military to shut down the operations of the Suez Canal if the security of ships passing can no longer be guaranteed. In this event, oil supplies to Europe through the canal would have to be rerouted around Africa which would drive up transportation costs and momentarily reduce oil supplies and bring up prices to a moderately higher level.
While an outbreak of violence across Egypt and a shut down of the Suez Canal would be a dramatic event and have far-reaching negative implications on other countries, it would not be the worst-case scenario. Far more dramatic would be a wave of unrest and destabilization across the entire Middle East which would disrupt oil production in a number of major oil-producing countries. The economic consequences would be catastrophic. Sudan, Syria, Jordan, Iran, Iraq and even Saudi Arabia, Oman and Yemen could be impacted by a revolution in Egypt. According to data from the CIA World Factbook, these countries produce round about 18,350,000 barrels of oil per day - which is more than 20 percent of the current 88 million barrels global daily oil production.
Hopefully, Egypt will manage to end the increasingly violent conflict soon and find its way back to being a source of stability for the Middle East as a whole. If the conflict spreads outside the country and destabilizes the region, the world economy is likely to be impacted negatively. A temporary blockade of the Suez Canal would not be as dramatic as a disruption of oil production in the entire region. Significantly higher oil prices over an extended period of time undermine economic growth and delay the world’s recovery from the financial crisis.
More on energy:
>>>> http://www.whatmattersweblog.com/new-energy-age-research-paper
