Sunday, January 30, 2011

Egyptian Crisis & The Markets This Week

Saturday—the first day of the work-week in the Middle East—stock markets in plunged across the board, on news of the Egyptian crisis: The Saudi stock market dropped over 6%, Dubai dropped over 4%, as did all other indices across the region.

They recovered somewhat on Sunday—but what hasn’t recovered is oil prices: Light crude is up to just shy of $90 a barrel. Gold too surged on the news from Cairo, to $1,330, as did silver, to $27.95, while copper went up to $4.37 a pound—with the expectation that oil, precious metals and industrial metals will all continue to rise.

Meanwhile, on the ground in Egypt, civilian police have lost control of the situation, while the military is on the fence: President Hosni Mubarek needs them to shore up his position, but they haven’t yet gone out and quelled the protestors, fearful that if Mubarek is swept away, they’ll be swept away along with him.

So the Egyptian military is guarding key government installations, as they wait out the situation. At this time, it is looking like Mubarek will eventually lose control, and be forced out.

So what does this all mean?

If Egypt is in melt-down mode, the future will depend on who takes over after Mubarek: The military, or someone else.

And if the Egyptian crisis crosses borders and sets off protests in other repressive regimes—especially the oil-rich regimes, which are all repressive—then this could become a serious problem short- to mid-term.

Is such a contagion likely? Well, the protests started in Tunisia, then spread of Egypt—so maybe yes.

Will this situation end soon, one way or another? Well, if the military continue on the fence, then likely no. The uncertainty will continue over the next week or so—at least.

So look for continued rises in oil and commodity prices, until the Egyptian situation is sorted out.

If—if, a very big if—there is continued instability in the region, up to and including regime change in Egypt or any one of the big oil producing nations in the Middle East, then it could be analogous to the Iranian Revolution in January of ‘79: Disruption of oil production following the Revolution.

And we all remember how that affected oil prices—and inflation—within the year.

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