How Egypt could affect the U.S. economy

[Tsotne]

NEW YORK — For investors, it is what is known as an exogenous event — a sudden political or economic jolt that cannot be predicted or modeled but sends shockwaves rippling through global markets.

Investors have largely shrugged off several of these unexpected developments recently, including the sovereign debt crisis in Europe, but the situation in Egypt has the potential to cause more widespread uncertainty, especially if oil and other commodities keep surging or the unrest spreads to more countries in the Middle East.

While Egypt’s banks and stock market were closed because of the protests there, other Middle Eastern markets declined in trading Sunday, with shares falling by 4.3 percent in Dubai, 3.7 percent in Abu Dhabi and 2.9 percent in Qatar. The markets rebounded slightly in early Monday trading.

By Monday afternoon, Asian markets were also trending lower, with the Nikkei 225 index in Japan falling 1.2 percent, while the Kospi in Seoul slid 1.8 percent and the Hang Seng in Hong Kong dropped 0.7 percent.

Last week, the Dow Jones industrial average nearly surpassed the closely watched 12,000 level, but fell 166 points in late trading Friday as the protests in Egypt intensified and oil prices jumped 3.7 percent to $89.34...

The economists are saying that there will be a sudden shock-effect on the economy due to a potential increase of oil price and then everything will be pushed back to its equilibrium. The thing is that "Pushed back to equilibrium" causes some ambiguity: Are economic variables expected to be back to their previous value or there will be found some new equilibrium points and they just mean that once they stabilize, they'll remain steady.

 

[TBeas]

If you are reading it on a printed news source, then it is already priced in the market,

 

[DominiConnor]

Egypt is not an oil producer, so any persistent change wouldbe by some sort of "domino effect".

Although it would be nice to see the back of every regime from Morocco to Pakistan, they are good at oppression, typically it is all they are good at. So my call is a few riots, nothing more in the oil states.

 

[Tsotne]

If you are reading it on a printed news source, then it is already priced in the market,

The market has of course reflected it already but im about the future trend. Its very hard to talk in the hot times when the situation hasn't yet calmed down. You know the economists in previous shocks while outbreaks of big conflicts in oil-rich countries (either political or with neighbors) were predicting the future trends in more or less reliable accuracy. Now, they cannot even state versions. As some new sources say, its because the crisis is not still over in the whole world and that makes it even more difficult to making correct assumptions.

 

[Tsotne]

Egypt is not an oil producer, so any persistent change wouldbe by some sort of "domino effect".

Egypt riot caused the Suez canal be closed leading to oil deficit - - - affecting the oil price.

Egypt protests: demonstrators clash with riot police in Suez

The Telegraph News

The turmoil in Egypt soon could hit Canadians in the wallet. The price of oil jumped 4.3 per cent Friday night, to end the week at $89.34US a barrel.

There is a concern that the riots in Egypt may spread across the Middle East and affect the flow of oil from the region.

The turmoil also boosted the price of gold and the U.S. dollar, each viewed as havens in troubled times.

The Canadian dollar closed at 99.89 cents US on Friday, down 0.79 of a cent.

The U.S. dollar stood at 100.11 cents CDN, up 0.79 of a cent.

Actually what I pointed there was that inflation is inevitable in the region.

 

[Andy Nguyen]

Crude oil prices and stocks rose on Monday as the financial markets continued to keep an eye on the situation in Egypt.

Nervous investors sold stocks on Friday as the protests in Egypt gathered momentum. But on Monday the stock market opened slightly higher, helped by new reports about the American economy as well as corporate earnings and mergers.

Crude oil, which jumped 3.7 percent on Friday, surged again on Monday. The price of crude rose $2.85, or 3.19 percent, to settle at $92.19 a barrel in New York trading.
Oil Prices Jump on Concerns About Egypt - NYTimes.com

 

[GoIllini]

Egypt is not an oil producer, so any persistent change wouldbe by some sort of "domino effect".

Although it would be nice to see the back of every regime from Morocco to Pakistan, they are good at oppression, typically it is all they are good at. So my call is a few riots, nothing more in the oil states.

Well, Egypt produces 900 kbpd and is an oil exporter. This is a little over 1% of world oil production. It's not a whole lot, but in an inelastic market, some variance from what's going on in Egypt is to be expected.

 

[Joy Pathak]

Well, Egypt produces 900 kbpd and is an oil exporter. This is a little over 1% of world oil production. It's not a whole lot, but in an inelastic market, some variance from what's going on in Egypt is to be expected.

The main reason price went up was speculation on the Suez canal potentially being closed as it is a huge choke point. I don't think it was actually closed. The riots are more than 200 miles away from the Canal. The oil that Egypt produces is basically all consumed by them. They will make sure that absolutely nothing happens to their oil fields which.

 

[Tsotne]

I don't think it was actually closed. The riots are more than 200 miles away from the Canal.

The riots spread to major cities throughout Egypt, including Cairo, Suez and Alexandria

The riot is spread within the whole country. Including Suez, very close to canal not 200 miles away.

As a result, the stability in the Middle East is jeopardized and thus major energy commodities including crude oil price (WTI and Brent) increased very rapidly yesterday during trade.

 

[darth]

I think markets are more concerned about this phenomenon spreading to other arab countries.

 

[bigbadwolf]

I think markets are more concerned about this phenomenon spreading to other arab countries.

Are markets concerned? The US is working hard behind the scenes to ensure that middle-class "reformers" like El Baradei take over (assuming Mubarak's hold on the country becomes untenable). New faces, some cosmetic changes as a sop to the general public, but mostly the same policies. Same thing in Tunisia. The idea is for disruptive, possibly revolutionary, forces to be sidelined, subverted, allowed to peter out. I think it will work.

There are longer-term problems of which the present phenomena are but a symptom: exploding populations, particularly of unemployed youngsters, and economies which have nowhere to go. But for the moment I think the US will be able to contain and manage the discontent.

 

[Tsotne]

The fear of US actually is that the radical Islamic force may raise to power.

 

[bigbadwolf]

The fear of US actually is that the radical Islamic force may raise to power.

There is no such fear. And the US government and (Egyptian) Muslim Brotherhood are happy to work together, official rhetoric notwithstanding. "Radical Islam" is largely a US bogeyman created to justify military budgets when the Soviet bogeyman inconveniently disappeared.

The problem at the moment is to contain riots and protests, which appear to have taken place because of rapidly rising food prices (itself arguably caused by the USA's QE2). There are of course other long-standing grievances (mass unemployment, half the population living at or under $2 a day), but it's the food prices that provided the catalyst.

 

[Joy Pathak]

The riot is spread within the whole country. Including Suez, very close to canal not 200 miles away.

Yeah. Some news reported that Suez and Alexandria were affected. I heard Cairo and Alexandria are the only places affected. If Suez really was in that much trouble we would see a major spike.

 

[bigbadwolf]

Interesting piece at Commondreams:

In spite of what some on Fox News (and the Israel lobby's camp) sought to argue this weekend -- namely that the protests were all the work of Islamist radicals -- every report from the ground contradicts that. As in Tunisia, the protesters are driven by fury at poverty, lack of options, and the looting of their state by the super powerful.

It's an equation we understand -- elsewhere: a massive gap between rich and poor is inconsistent with democracy. But before you get carried away with third world conditions there, try here. On Friday a guest blogger at Yves Smith's Naked Capitalism blog noted a remarkable fact: the U.S. actually has much greater inequality than Egypt—or Tunisia, or Yemen.

The Gini Coefficient is a number economists use to measure inequality, and the U.S. is ranked as the 42nd most unequal nation — Egypt is 90th.

It's not just numbers — we can see it every day. As Edwidge Danticat told us last week, “There are places in the US that are like Haiti, that are like Zimbabwe.”

 

[Tsotne]

Yeah. Some news reported that Suez and Alexandria were affected. I heard Cairo and Alexandria are the only places affected. If Suez really was in that much trouble we would see a major spike.

Last week, the Dow Jones industrial average nearly surpassed the closely watched 12,000 level, but fell 166 points in late trading Friday as the protests in Egypt intensified and oil prices jumped 3.7 percent to $89.34...

The 3,7% increase in oil price can easily be considered as spike. average $10.00 (approx) increase every day since the outbreak of riot.

 

[Tsotne]

Most analysts and commentators doubt that the Suez Canal will actually be shut down, and as of now it is still operating, however, the probability of it being shut down is certainly higher given the situation, and the market is pricing that in.

What confuses me is how the markets are rallying today, shrugging off the potential consequences of >$100 oil on the recovery

Don't you think that the market is also reflecting the possibility (or at least rational expectation) that the situation will calm down and prices will be stable again? In contrast what confuses me is another thing(I have to repeat myself): The new equilibrium is a quite ambiguous issue. Are economic variables(particularly the oil price and inflation) expected to find a new prices and remain stable on that level or return to the old values.

Actually investors (although carefully) are trying to foresee the future behavour of oil price. What the market expects to happen after this shock is determining the number of speculative shares, options, generally the financial securities traded.

 

[DominiConnor]

Fox would see a meeting of Jordanian childcare advocates as a Moslem conspiracy. As far as I know one thing that Ofx has not reported is that China is censoring news on Egypt.

I see a shutdown in Suzes as extremely unlikely. From that perspective it doesn't matter whose side the army is on, just so long as Egypt has only one army, and as far as we can tell, it is united.

Sure there are crazies in Egypt, because America and Europe has been supporting the bad guys.
If you are oppressed, tortured and extorted by an ally of the West, you tend to think the West are also bad.

Egyptians are smarter than we deserve. They want our values, democracy, the rule of law, much less corruption and freedom of faith, well most of them do.We've been helping those that denied that to them in order to keep Israel happy, they're unhappy now. When you are worried that a brutal dictator will lose power, your foreign policy sucks.

Egypt being a corrupt state has almost no social welfare system, and various Moslem groups have stepped into that area. Some of those are genuinely trying to help, some are Moslem crazies who want Sharia, quite a number are in between.
The most compelling argument against Sharia, is Sharia. Look at countries where they have some form of it, and few would live there if they had a choice, Moslem or not. Egyptians mostly know that.

Of course they are a bit vauge about what democracy actually is, since we've stopped them having any, so it's 50:50 that they build one. but that's 50% more likely than last month.

We can't intervene, since we are so shit, that whatever faction we support will be assumed to be the enemy. This is so deterministic that we should openly support the Moslem brotherhoods since that wold not only deny them power, but many of them would be beaten to death by the crowds.

We can and should pull the plug from the regime, offer then the same deal Marcos got in the Phillipines or Idi Amin got from Uganda. A jet to take them somewhere warm where they can spend their stolen cash and screw their whores.

 

[Andy Nguyen]

Shippers Concerned Over Possible Suez Canal Disruptions

Shippers Concerned Over Possible Suez Canal Disruptions - NYTimes.com

HOUSTON — Western oil and gas companies have halted most drilling in Egypt, but as violence has broken out in some cities the biggest immediate threat to world energy supplies could emerge from a possible blockage of the Suez Canal or nearby pipelines.

So far oil and gas flows through Egypt have not been interrupted and the army has stepped up security around the canal and pipelines.

But rising tensions in the port of Suez have led several shipping companies to order their ships not to change crews in Egypt. Meanwhile disruptions in government port services have slowed the discharge of some crude oil cargo at the Red Sea port of Ain Sukhna at the southern entrance to the Suez Canal.

 

[Tsotne]

Today might be a final day of revolt. Both parties (opposition and government) are placing ultimatums.