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Protest in Egypt

Continuing instability and outbreaks of violence across Egypt and Syria mark more than a temporary concern for oil production and supply.

Hundreds of protesters gathered in Cairo for day six of their demand for President Mursi to withdraw his law that gives him disproportionate powers in Egypt.

While Egypt is not the biggest player in the Middle Eastern Oil Production, it controls important transport routes from the Middle East, which could lead to export blocks should the outbreaks escalate into civil war. A third of the world’s oil supply comes from the Middle East, and investors have been watching developments closely, since last week’s ceasefire between Israel and Hamas.

While the ceasefire, following eight days of battle in the Gaza strip, provided a brief sigh of relief for oil importers, new outbreaks of violence in Egypt have provided an extra cause for concern for oil prices, once that could potentially be long term.

Recent fighting in the Gaza strip occurred when an Israeli airstrike killed Hamas commander, Ahmed Jabari, previously accused of coordinating ‘all terrorist activities against Israel from Gaza’ in the last ten years.

Dispute over the territory had led to violence in the days leading up the assassination, but Jabari’s killing, Hamas said, had ‘opened the gates of hell.’

The introduction of premium oil prices will be due to this imminent risk of war, resulting in large quantities of oil being declined to overseas buyers. The US market alone has constructed a 3-5 billion dollar risk premium for the price of oil, since violence in the Gaza strip first broke out last week.

Since the cease-fire, concerns seem to have waned but there has been no clear step towards peace in the region, leaving many to assume that unrest in the Middle East will herald a long-term price premium of oil in the coming years. This will also have a knock on effect on other relevant industries such as the energy translation sector.

Davide McAlvany, CEO of McAlvany Financial Group said:

“What we’re seeing in Egypt is a long-term issue and a new stage of instability, one that goes beyond Egypt.”

“We used to have predictability in the Middle East with relationships that went back decades. We don’t have that anymore and that makes events even more volatile because you don’t know how key players will act.”

With European and US leaders planted firmly on the side of Israel, while many Arab leaders voice their backing for Hamas, Middle Eastern affairs will be under close observation from the world, particularly for the consequences to oil exportation.

It has been suggested that the Gaza attacks were strategically planned nine weeks before Israel’s parliamentary elections to weaken their campaign for UN observer status, further damaging their attempt to make stronger political connections.

With the world’s superpowers still dependent on, and beholden to, some of the most volatile regions in the world for the survival of their economy through energy supply, the future of international relations and oil supply with the Middle East will remain uncertain.