The political turmoil in Egypt and other Arab countries sits at the intersection of three key issues: volatility in the commodity markets, Middle East politics, and US energy policy. The potential for the unrest to intensify the upward trend in crude oil prices will bring a greater focus on energy in Washington, yet it could also destabilize the nascent economic recovery, affecting the debate in unpredictable ways. In this Energy and Climate Brief, Garten Rothkopf examines the economic factors behind the crisis in Egypt, as well as how it may alter the policy agenda for energy in the US.

The political uprising that began in Egypt last week protesting the rule of President Hosni Mubarak has pushed up crude oil prices, raising questions about what impact the crisis will have on the region and on oil prices in the coming year.  Inspired by protesters in Tunisia that successfully drove long-ruling President Zine El Abidine Ben Ali from power last month, the demonstrators in Egypt have called for Mubarak's immediate resignation and a transition to a democratic government.  As of publication, the protestors have secured a partial victory, with Mubarak announcing that he will not seek reelection this September and pledging to make reforms to the Egyptian constitution. The conflict, however, is far from over, as supporters and opponents clash throughout the country.  The Egyptian crisis binds three key issues: stability in the Middles East, commodity prices, and US energy policy; all interconnected, and all susceptible to fast-paced changes.  The uncertainty and interconnection between the three threaten to affect US domestic politics in unexpected ways this year.  Today’s GR Energy and Climate Brief looks at the implications of this volatile interplay and assesses the fallout in terms of its impact on the energy and broader economic debates in the United States during the year ahead.

Potential for Spill-Over from Egypt Rattling International Markets

The current turmoil in Egypt arose from longstanding political and economic grievances, made all the more acute with the rise of commodity prices in an ossified economy.  It reflects a vicious cycle post-Russian fires of low grain storage, the global economic downturn, quantitative easing in the United States, inflation, and higher oil prices on the international market.  The crisis in Egypt has exposed, in stark terms, the political ramifications of growing instability in global food markets.  Global food prices have risen for seven consecutive months and reached a historic peak in January. Rising petroleum prices, crop yields, food stock levels, and exchange rates are the main factors, but trade policies and a lack of reliable, up-to-date data are also driving the volatility.  Recently, French President Nicolas Sarkozy decided to prioritize food price volatility on the G20 agenda this year under France’s chairmanship.  For a country like Egypt whose population spends about 40 percent of its monthly income on food, prices for staple goods have increased markedly in the past year, including a 30 percent increase in wheat prices.Spikes in food prices have led to political unrest in Egypt in the past, though never to the degree now on display.  The combination of anti-government sentiment and economic woes is not unique to Egypt, however, which is why much attention has been paid to other protests going on in Yemen, Jordan, and Algeria, and why many have speculated about unrest spreading to other Middle Eastern countries.

See full article here.