Upswing in oil, food prices

The standoff in Egypt and uncertainty about where it will lead is causing global economic jitters. It's already pushing up the price of oil and food, and there's no telling how long the turmoil will last.

The big worry is that popular uprisings and revolution will spread to Egypt's rich autocratic neighbours who control much of the world's oil supply.

How far will anti-government movements go? Will oil supplies be disrupted? Will the U.S. see its influence in the region decline and that of Iran and other fundamental Islamic regimes surge?

Right now, these are open questions. But there's no question that the crisis has created new risks for still shaky world economies and put a cloud over world financial markets. Instability in the Middle East, if prolonged, could jeopardise fragile recoveries in the U.S. and Europe. It could limit job creation and fuel inflation.

The situation remains tense after more than ten days of street demonstrations as protesters demanding President Hosni Mubarak's immediate resignation continue to skirmish with pro-Mubarak loyalists in the centre of Cairo. Such protests earlier brought down the government of Tunisia and have already spread in more modest ways to include Yemen and Jordan.

Oil prices have hovered at around $90 a barrel over the past week, with some analysts predicting the Egyptian crisis will lead to $100 a barrel prices sooner rather than later. Traders worry the unrest might spread to oil-producing countries in the region and even affect shipments through the Suez Canal. Egypt controls the canal and a nearby pipeline that together carry about 2 million barrels of oil a day from the Middle East to customers in Europe and the U.S. Several large Egyptian refineries near the canal have been the site of recent protests. The likelihood of the canal being shut or blockaded seems remote. It is a huge source of revenue for Egypt that the government will not want to lose, no matter who is in charge.

Still, just the possibility could spook financial markets if tensions escalate.

Meanwhile, rising food prices helped fuel the popular uprising in Egypt, where most of the population is poor. And the turmoil there and unrest in Somalia and other Arab nations now appear to be driving food prices even higher.

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Printable version | Dec 4, 2021 5:32:26 PM |

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