Saturday, February 5, 2011

Civil unrest in Egypt and its possible economic repercussions


In market (vegetable market in the locality) at times you would find the prices of Brinjal and Pumpkin going up when there is war between Iran and Iraq.   The events in one part of the globe have their impact elsewhere………………

Egypt seemingly is bursting at seams and unrest is spreading to JordanTunisia and Syria are experiencing difficulties.  Problems galore in Afghan and there are some countries eternally known for unrest and hardships.  The  recent political upheaval in Egypt and other Arab nations has created regional instability  and threatens to disrupt the economy.  There are  some trying to rope in peace negotiations.

One needs to roll back 3 decades in history - On 6 October 1981,   Egyptian President Anwar Sadat  was assassinated during the annual victory parade held in Cairo  and Muhammad Hosni Sayyid came to power as Fourth President and continued for long thereafter.  From  January 25, 2011, people are on the roads of Egypt demanding resignation of the President.  Life has perhaps come a full circle.  Talks between Egypt's opposition and the government have failed to stop thousands from demonstrating and calling for his immediate removal.

In International market, tanker stocks surged ahead as Investors speculated whether the civil unrest in Egypt could lead to a shutdown of the Suez canal and spark more demand for ships.  As you would know, Suez canal is the key transit point for oil and fuel shipments from the Persian Gulf to Western hemisphere and a closure would mean ships having to ply a longer route across the southern tip of Africa – traversing thousands of more miles and there by increasing the cost.  Every interested party knows the economic repercussions of closure  and thought there is no solid indication of its shutting down, the distant possibility due to protestors rallying in the streets of Egypt against President Hosni Mubarak could not be ruled out in its entirety.  This could badly hurt the operation of tankers already hit by soft freight rates.

Far away from the actual scene of action, in the share market, the tanker companies shares seem to be rallying and there was heavy volume trading.    The Canal of the Pharaohs also called the Ancient Suez Canal is the forerunner of the Suez Canal, constructed in ancient times. It followed a different course than its modern counterpart, by linking the Nile to the Red Sea via the Wadi Tumilat.  The exact time of its completion does not appear too well documented though there are references to Necho II, Darius I of Persia and some other kings. 

The scene of action- Egypt is a country in North Africa  with the Sinai Peninsula forming a land bridge in Southwest Asia,  a transcontinental country, and a major power in Africa, the Mediterranean region.  It is bordered by the Mediterranean Sea to the north, the Gaza Strip and Israel to the northeast, the Red Sea to the east, Sudan to the south and Libya to the west and is one of the most populous countries in Africa.  Vast population live near the banks of the Nile River, and the  large areas of the Sahara Desert are sparsely inhabited.  Egypt is famous for its ancient civilization, with famous monuments such as the Giza pyramid complex and its Great Sphinx.  It attracts tourists for its  ancient ruins, such as those of Memphis, Thebes, and  other places of archaeological importance.

For many years it has remained stable and peaceful with  30-year rule of Hosni Mubarak.  His National Democratic Party has monopolised power  holding a strong hand though there were issues of poverty, , rising food prices,  corruption and  more pointers leading to unrest.  The overthrow of autocrat Zine al-Abidine Ben Ali in Tunisia had its shadow here as well.  Now people are rallying on streets seeking the fall of the regime which has ruled for 3 decades.   The autocratic ruler had all along been aided strongly by US regime  and its military aid. 

Though media is pointing out protests by people from all sectors, there does not seem to be any opposition political figure or group at the helm of such demonstrations.  For some time now, Hosni Mubarak has resolutely resisted calls to step down but he has made a number of concessions to try to appease public and international opinion.  His security forces also tried repressive measures but the numbers have grown and it is not working now.    There have been protests centering on Cairo’s  liberation square and march of million has been claimed.  This place is not known for democracy and the unrest could have a bearing for the Arab countries and its rulers as well.  Protests have been reported in Alexandria as well.

Moving away from politics to economy, closer to 18000 ships passed through Suez canal in 2010 of which 6900 were container vessels, then there were dry bulkers, chemical and other product tankers and crude tankers.  The dreaded closure of  the major artery connecting Red sea and  Mediterranean would mean ships diverted around the Cape of Good Hope, adding thousands of miles to journeys from Europe and the US to the Middle East and Asia — and tying up ships for longer periods of time, increasing the voyage time and burning more fuel adding to more costs.  It is estimated that close to 8% of world’s sea born traffic in goods passes through Suez canal including barrels of oil.  Egypt is known to be a major importer of wheat and corn.   Commodity shortage would add to the social unrest and lead to spiraling inflation inside the country. 

There continues to be reports that the shipping companies have not had any trouble in moving goods but that stress itself is becoming a news.  The canal had been closed only twice in its history during 1956 Suez crisis and for an eight year period from 1967 due to Egypt-Israel conflict.  The shipping world is watching with anxiety the happenings in Egypt and any news on closure is bound to impact the oil prices.  That is not good news for the World economy either.


Regards – S. Sampathkumar.

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