Egyptian Government Resignations, Other Geopolitical Events Pushing Crude Prices Higher

Michael Teague  |

Crude oil futures for April 14 delivery have been trading consistently higher since the previous week, and added nearly another percent on the New York Mercantile Exchange ahead of Monday’s closing bell, after the Egyptian government officially tendered its resignation earlier in the morning.

Turmoil has been a mainstay of Egypt politics since the 2011 popular movement that overthrew the decades-long dictatorship of US-backed “strongman” Husni Mubarak. This has affected global oil prices, as the country is responsible for the operation the Suez Canal, a vital shipping route that sees some 4 billion barrels of crude traverse its waters on a daily basis.

Sinai Militancy Disrupts Key Shipping Route

The Sinai Peninsula that overlooks the canal and also serves as the bridge between Egypt and Israel has seen a spate of armed attacks since the momentous events of 2011, from what the government insists are Islamist militants. Though it is difficult to tell how much of this activity overlaps with the grievances of the historically subjugated Bedouin population of the Sinai, violence in the region has spiked ever since the military’s decision last summer to overthrow the country’s democratically elected president Mohamed Morsi, after the latter became the target of absolutely massive demonstrations that saw tens of millions of Egyptians back in the streets.

Though not often portrayed as such in a vast swathe of the Western press, the political situation in Egypt has taken a decisive turn towards what looks like textbook fascism. The government’s resignation on Monday is just the most recent and significant step in this progression, as it clears what little remained in the way of legal and political hurdles preventing a presidential run from Field Marshal Abdel Fattah al-Sisi, head of the Supreme Council of the Armed Forces.

Ever since last summer’s coup, al-Sisi has been asserting his authority in ways that are quite shocking, such as the declaration that the political party of the ousted former president, the Muslim Brotherhood, was a “terrorist” organization. Despite how unpopular the Brotherhood had become during the disastrous year of Morsi’s tenure, the organization has been a mainstay of Egyptian politics for decades and has traditionally enjoyed enormous popularity among the country’s urban and rural poor. All this has changed dramatically in less than a year’s time, however, as Brotherhood members have been hunted down, jailed, beaten, and murdered by the army and security apparatus since the removal of the former president.

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Fascist Iconography

Another sign that the North African nation is creeping toward a fascist order is the blatant attempt on the part of the military and sympathizers in the political class to encourage a cult of personality around the Field Marshall. As the UK’s Financial Times pointed out in an Oct 11 article last year, this iconography has reached the extent that one Cairo coffee shop was selling portraits of al-Sisi made of chocolate hand over fist.

But the consolidation of Sisi’s power, cult of personality or not, is supported by a large section of the populace, who have been willing to overlook the army’s crackdown on the Brotherhood over the past months. In terms of the Canal, however, it has meant an uptick in militancy in the Sinai, an event that could yet produce severe and unintended consequences on a number of fronts, especially given the proximity to the Gaza/Israel border.

Already, the last few years of attacks on the Peninsula have had the effect of deterring companies from using the canal (originally nationalized back in 1956 by the country’s first military dictator, the legendary Gamal Abdel Nasser), causing irregular disruptions to a key source of revenue. It would also result in higher oil prices, as shipping delays inevitably lead to higher costs for all involved.

Whether the Brotherhood is directly linked to the attacks, or whether this is an instance of opportunism on the part of smugglers and other types of criminals and political actors is a matter of conjecture. But with the government’s resignation on Monday, Sisi is largely expected to leave the helm of the military to make a bid for the presidency, and this could easily result in more violence in the Sinai. Many commentators and analysts expect to see him win, potentially by impossible margins such as were seen regularly during the reign of Saddam Hussein in Iraq.

Major World Oil Producers Descend Into Conflict

Still, events in Egypt haven’t been the only geopolitical catalysts pushing oil prices higher over the past week. Venezuela has teetered ever closer to the brink of catastrophe after the government opened fire on opposition demonstrators over the weekend. The country is one of the world’s largest oil producers, but has become increasingly unstable after the death of former president Hugo Chavez.

Back in North Africa, ongoing chaos in Libya has once again disrupted oil production, while Iraq seems to be heading for the long-predicted “Balkinization” as Sunni insurgents have reasserted themselves in the eastern part of the country by taking over former strongholds, most notably in Fallujah, a city that currently surrounded by the Iraqi army on three sides and swelling with anti-government fighters through the one remaining entrance.

With all of this going on in the world’s major oil producers, it looks like a frighteningly cold winter in the US is only one among many reasons for more expensive crude. Shortly before the bell, futures had pared back gains from earlier in the day, receding from a high of $103.45 per barrel to $102.87 per barrel.

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