Egyptian unrest stokes oil fears, but Mideast markets relax
Investors began separating the losers and the gainers from Egyptian unrest on Wednesday, as fears the turmoil would interrupt the world oil trade lifted petroleum prices to their highest level in more than two years while share markets in the Middle East rebounded.
The price of North Sea Brent crude futures held above $100 a barrel on Wednesday and just below the 28-month high they reached a day earlier, amid concerns the standoff between Egypt’s government and the opposition might close the Suez Canal. Investors also remained jittery about the risk of unrest spreading to the Middle East’s oil exporters.
But the bad news for oil consumers was greeted joyfully in Gulf Cooperation Council (GCC) countries, which sit on top of the world’s largest reserves. Investors also assessed that the protests that have shaken Egypt and Tunisia would probably not spread to the Gulf. GCC share prices rebounded.
“There were obviously some concerns of the region due to Egypt, but I think those are relatively limited,” Giyas Gokkent, chief economist at National Bank of Abu Dhabi, told The Media Line. “The overall impact of the turmoil in Egypt on the GCC economies will be relatively limited. Investors have come back. They’re saying, ‘We were being premature. Let’s reconsider.’”
The Dubai Financial Market General Index posted its largest gain in ten months, rising 3.3%, while Abu Dhabi’s ADX General Index jumped 1% and Saudi Arabia’s Tadawul All Share Index closed up 2.2%, the highest in a week. Gokkent said it was local investors who were the most bullish.
“From what we’ve seen so far, it’s mostly local investors mostly participating in the current uptick,” he said. “In terms of foreigners, they probably want to see things settle
While protests continued in Egypt on Wednesday, Gulf investors were cheered by President Husni Mubarak’s decision not to seek another term in office, a move some said may go far enough in the direction of change to bring about an end to the unrest, which marked its ninth day on Wednesday.
In a televised address late on Tuesday, the Egyptian leader said he would not seek re-election in September. The move failed to satisfy the opposition, which continued to demand that he step down immediately, but in the first show of support in the street for the government, some 20,000 Mubarak supporters marched on Tahrir Square on Wednesday, swamping the opposition presence.
Even in Israel, which regards the Egyptian leader as one of its closest friends in the Middle East and a bulwark against Islamic radicalism, the Tel Aviv Stock Exchange’s TA-25 index closed 0.9% higher.
But not everyone was convinced that the threat from Egypt is over. Nassib Ghobril, chief economist at Beirut’s Byblos Bank, told The Media Line that investors were unnerved by the sudden eruption of the protests in Egypt, and weeks before that in Tunisia. Even though the contagion they feared hasn’t occurred, they fear further surprises.
“Egypt has been a stable country for many years. Frankly, with this kind of rapid and unexpected change it’s normal to have investors squeamish because the level of uncertainty,” he said. “After what has happened in Tunisia and Egypt, investors will definitely take into consideration more political risk than they had done previously.”
In Egypt, the economy remained at a standstill. The Central Bank refused again on Wednesday for the third day to allow banks to open for fear they might be looted. Most automatic teller machines are empty of cash. Even the shut-down of the Internet, aimed at disrupting the opposition, has hurt business. Moody’s and Standard & Poor’s, the world two biggest credit rating agencies, downgraded Egypt this week.
Egypt’s newly appointed finance minister, Samir Radwan, told BBC Radio 4 that the country’s economy had been damaged by unrest, but he denied it had been plunged into chaos. “There is a crisis; there is no doubt about it. Certainly I wouldn’t deny that the economy has suffered,” he said.
Oil traders are concerned about the impact Egypt’s closing the Suez Canal would have because the transit route carries 7% of world trade, including some 1.8 million barrels of oil daily. Without the Suez shortcut, the price of shipping oil from the Gulf to markets in Europe and North America would rise, adding to energy costs.
In addition, Arab investors have considerable investments in Egypt, including real estate, banks, Byblos’ Ghobril said. Egypt is the Arab world’s third-largest economy, counting for 11.5 of its gross domestic product.
But most analysts said the main threat Egypt poses is political. At $188 billion in current dollars in 2009, Egyptian economic output is about the same size as that of Alabama. “It doesn’t have the same magnitude as a political event that impacts on the GCC directly would have,” Gokkent said.