Unrest Not a Cause of Sustained High Oil Prices

Remember the summer of 2008, when gas averaged more than $4 a gallon, when the price of a barrel of crude was $145, and when analysts were predicting oil prices to rise even further?  Does the recent rise of oil prices above $100 a barrel – and talk of prices climbing further – make you worry those days are but a few weeks away?  Well they’re not, so don’t worry.  The civil unrest occurring in North Africa in recent weeks – first a coup in Tunisia and now continuing protests in Egypt – has unnecessarily driven the cost of oil up.  Oil isn’t the only commodity fallen victim to a steep rise in prices – food prices have also spiked particularly sharply in recent weeks.

In the case of oil, speculators have made their dubious presence felt once again, conflating Suez Canal traffic and Sumed pipeline capacity with indigenous Egyptian oil supply.  Egypt is but a minor player in the global oil export game – it actually imports a portion of its oil consumption.  But markets worry that somehow the risk from uprisings in Cairo will cause events to occur that restrict the canal’s capacity some 70 miles of desolate desert away.  These worries of supply risk are, at best, “overblown.”

Analysts have predicted the likelihood of a major interruption to trans-Egyptian oil flow as “unlikely” and, despite two disruptions at Egyptian ports last week, prices have begun to decelerate their rise and – on some indices – begin to fall.  Despite continuing unrest, and the ardent desire of President Hosni Mubarak to remain in office until the next election in September, oil prices should not rise significantly.  If a major price surge does occur, it will occur more as a result of OPEC’s unwillingness to increase production in the face of rising global demand than a result of Egyptian civil unrest.

For more stories on the crisis in Egypt, click here.