Volatile market spikes play out in Egypt protests

by EPDaily | February 1, 2011 at 09:35 pm

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The International Energy Agency (IEA) states that around 87 million barrels of oil are pumped out of the ground per day (mbbl/day). That comes to roughly 32 billion barrels per year, so it is safe to say that disruptions in supply affecting relatively small quantities of oil will not have a calamitous effect on global oil prices. Lapses in safety, environmental disasters, even sabotage don't necessarily affect the price of oil in significant ways. So what does affect the price of oil in global markets?

Political instability in countries that produce large quantities of oil and global economic growth and expansion predominantly affect how much a barrel of oil costs now as well as what forecasters predict it will cost in the near future.

While Egypt is not a major oil producer (pumping just 750,000 bbl/day compared to Saudi Arabia's 8.5 mb/d), it is a country that is essential in the flow of oil out of the Middle East into global markets. According to the U.S. Energy Department, 2.9 mb/d passed through the Suez Canal and SUMED pipeline in 2009. If the unrest in Egypt closes down the Suez Canal, oil-carrying ships will be forced to add an additional 6000 miles to their journeys to market. Just the fear that this could happen has already sent oil prices rising.

But, more alarming for oil traders, producers, and consumers is the growing trend of social unrest in the Middle East and Northern Africa. Social unrest in Tunisia, Yemen, Libya, Sudan, and Egypt is threatening to spill over into the entire region, causing analysts to ask how many oil-producing nations in the Middle East and Northern Africa does it take to collapse before Western economies begin to decline ominously.

Already, the IEA has called on OPEC to carefully watch the situation in Egypt for signals to increase production in order to protect global markets from panic spikes in the very near future. Some analysts think we could see $120 oil by the end of the month/week.

Speculation about what kind of government would be implemented if the revolution in Egypt is successful in overthrowing the established regime has government officials and media journalists scrambling to define the root causes for the spike of unrest in the region. Will a new Egyptian government be sympathetic to American interests, or is the cozy relationship between Mubarak and the U.S. one of the reasons for the current regime's demise?

More importantly, though, is the question of whether Egypt's unrest is just another link in the collapse of governments in the region signaling more to come. Jordan and Lebanon have been mentioned as countries that are on the brink of this kind of protest. Others have even wondered if the unrest in Egypt will spark protests in Israel or even in America.

Such claims, like unrest in Arab countries spreading to Israel and America, are based upon the analysis of the root cause of Egypt, Tunisia, Yemen, Libya, and Sudan's problems. Protests grow into mass social movements demanding reform and in some cases a complete overthrowing of the established government when the people being governed feel as though their government has abandoned them. When unemployment runs rampant for too long, or people's circumstances remain stagnant for months turning into years, or corruption of government officials becomes the preferred method for governing, or prices of food and energy cripple the middle class while the upper classes reap more and more profit, people revolt. Could revolution come to America and Europe or are we too complacent in our lives to take to the streets?

Before you go running off saying that a revolution in America is crazy talk, take a look at unemployment figures among youth in both the U.S. and the Northern Africa and among the general population in the U.S. and the Middle East. In the U.S. and Europe, youth unemployment is around 18%, in Northern Africa, it's 23%; unemployment among the general population in the U.S. is around 9%, in the Middle East, it's 10%. The point of these comparisons is to finger a culprit in uprisings in the Middle East and Northern Africa regions, namely, that a significant number of youth are idle, watching their futures deteriorate with no sign that their government is acting to improve their situations. So, in the blink of an eye, the situation changed, and U.S. government officials are now asking themselves if America could go the way of Egypt? What would it take for Americans to begin protesting on a massive scale?

It all comes down to the price of commodities. Revolutions begin when opportunities vanish and prices rise significantly.

For a host of different reasons, food prices across the globe have skyrocketed as of late, causing governments of the world to lock down food supplies. Fires in Russia last summer, drought in China, floods in Pakistan and Australia, weather disruptions to crops in Canada and Argentine have all stressed the agricultural sector to its breaking point. 2011 could very well be the year where food riots become commonplace; it could also be the year where energy prices spike and the global economy crashes, this time for a sustainable period of time.

It would appear as though the only aspect of sustainability that Western governments are working on is creating conditions whereby a sustainable collapse can take place. Currency, energy, and agricultural conditions have either been ignored or manipulated so as to widen the rich-poor gap to such an extent that revolution on a global scale seems inevitable. Hopefully, that revolution can take place peacefully and in a positive direction.

Andrew Revkin over at the Dot.Earth blog of the NYT asked the question Sustain What? in relation to the nature of the word sustainability; he said it was an adjective and not a noun. I guess I would have to agree in the abstract, but sustainability can be a noun when it becomes a way of life and not a segregated term relegated to minute aspects of the economy and political landscapes. Sustainability is a movement.

Not unlike in many other parts of the world, the price of food and energy in Egypt has been soaring in recent years. With respect to oil, countries that produce it domestically have been using more of it internally and so have less available to export. In the case of Egypt, they will need to increase their oil imports in the future in a world where prices are rapidly increasing. With respect to food, Egypt's population has grown substantially in the past decade causing the need for land for housing to compete with the need for land for agriculture. In a country whose only arable land is a narrow strip along the Nile River, this growth of population and competition for land is leading to the reality that Egypt over time will be able to produce less and less of its own food.

The problems being felt in Egypt are the same problems being felt around the world. Every continent on the planet is experiencing weather anomalies to the extent that their food production is being significantly affected. The depletion of fossil fuel resources in an era where the global economy is reliant upon cheap energy in order to function in a stable manner is affecting every country equally. Our energy paradigm and environmental philosophy have seemingly reached a limit whereby nations are starting to crumble. The status-quo is starting to unravel.

While food prices have yet to reach their peak in 2008, the Food and Agriculture Organization has said that higher food prices are probably here to stay. Without a respite in natural disasters that have become more prominent in the recent past, harvest numbers will decline and speculation will rule the commodity markets. Author Derek Heady stated his concerns about food price risks comparing it to how a light drizzle when the ground is saturated can turn into a flood, "Once equilibrium prices are already higher, there is a greater potential for short-run factors to induce tremendous short-run volatility, because markets are already tight".

Panic buying by developing nations in global food markets has started early in 2011.

Congratulating the Egyptian people on overthrowing their respective government might not be called for quite yet, as it is still unclear what kind of ruling system will be put in place; a new Egypt may end up being considerable more hostile to U.S. and Israeli interests, and might very well create a substantially more unstable Middle East.

One thing is for certain, no matter what faction takes over power in Egypt, the same problems will still persist that caused this revolution and others like it to take place. Our global society is on an unsustainable path; everything about our modern lives is unsustainable. We are headed for disaster of calamitous proportions. As (soon-to-be) former UN Secretary General Ban Ki-moon stated this past week in Davos, Switzerland:

Let me highlight the one resource that is scarcest of all: Time. We are running out of time. Time to tackle climate change. Time to ensure sustainable, climate-resilient green growth. Time to generate a clean energy revolution. We mined our way to growth. We burned our way to prosperity. We believed in consumption without consequences. Those days are gone. In the 21st century, supplies are running short and the global thermostat is running high. Climate change is also showing us that the old model is more than obsolete. It has rendered it extremely dangerous. Over time, that model is a recipe for national disaster. It is a global suicide pact.