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The Economist: Protests and the Pump

February 3, 2011

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"The Economist" explains why food, not oil, prices may be hit hard by Egypt's revolution.

The tide of unrest sweeping Egypt has whipped up waves in the oil market. Anxiety often has a role in determining the price of black gold and traders, with plenty to fret about, sent a barrel of oil above $100 for the first time in two years on January 31st. Fears abounded that the upheavals in Egypt might disrupt the passage of tankers through the Suez Canal and, worse still, that the popular uprisings in Egypt and Tunisia might spread across the Middle East.

So far the concerns seem overblown. Egypt is a small producer and actually imports a little oil. It is better known for its role as a transit route. Over 4% of global supplies of oil—after the lows of 2009 that equates to nearly 4m barrels a day now, according to Barclays Capital—are transported through the country, either by ship on the Suez Canal or along the SUMED pipeline (see map). Crude and refined products travel both ways on the canal (along with many other goods). But there is little hint that Egyptian authorities have any intention of disrupting this trade or that protesters have the means to prevent the oil from moving, even if they wanted to.

If the canal shuts down, the pipeline has the spare capacity to take much of the displaced crude northward. Even a total halt would be far from catastrophic. There are plenty of spare tankers that could shift Gulf oil the long way to Europe around the Cape of Good Hope—putting a couple of weeks and some added expense on the journey. Some rebalancing of global flows might lessen the impact of plying the longer route: Gulf oil bound for Europe could be dispatched east and African oil bound for Asia sent to Europe instead.

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