Egypt Turmoil and My Dollar



By: YOSEF TASTASSA  
Published: January 31st 2011
in Economics » Local

Domino Effect

Not my problem. Really?

 

Some of us probably stopped to fill up gas this morning and realized that the price was around 114.5 cents per liter. Three days ago it was around 111.8 cents per liter.

 

Ask yourself why did gas go up 3% and the answer is Egypt.

 

Egyptian oil does not reach the coasts of Canada but Egypt is an oil exporter and around two million barrels of crude oil are transferred every day through the Suez Canal on their way to Europe. If the oil tankers decide not to cross the Suez Canal amid security reasons, and circle Africa instead, then transportation costs will increase and the cost of gas goes up.

 

The markets rely on stability, and today with the world seeming like such a small place, every little change or uncertainty has an impact even in remote places.

 

North American markets

 

The markets in New York were pounded by 2.5 percent last Friday amid the turmoil in Egypt. If the riots will continue and the uncertainty will increase it will affect Bay-Street as well.

 

Even if you don’t invest directly in the stock market, and think that you’re unaffected, you’re wrong. If you have RESP savings, trust funds, saving plans, pension plan, etc. then you’re affected since most of them invest in assets that are related to the capital market.

 

The turmoil in Egypt affects your pension. It’s as simple as that.

 

A possible domino effect

 

Egypt, the biggest and strongest Arab state, is an integral part of the Arab world and also vital to the world's economy. As we all remember, the first riots started in Tunisia and the Tunisian tyrant Ben-Ali was forced to flee the country.

 

The Egyptian people were encouraged by their Tunisian brothers and did the same.

 

Imagine that the Middle East will go through a domino effect and countries like Syria, Jordan, Saudi-Arabia and Iran will have to face raging crowd in the big cities demanding from the government to resign. Almost 20 per cent of the world's population is concentrated in those areas.

 

If that happens, the results will be political and economic tsunami that could make the 2008 crisis look like an appetizer.

 

Economic impact on Israel

 

The Israeli markets went through a storm on Sunday trading. The major Indexes lost over 4 per cents, the trading volumes were huge and the headlines showed nothing but panic. The banking sector and the Israeli government bonds suffered the most.

 

The shekel will probably weaken sharply against other world currencies and the US Dollar will surge. Anyway it's all relative, better holding the Shekel than the Egyptian pound.

 

When bonds fall in one part of the world they fall on the other part as well. US bonds dropped sharply and the same happened in fragile Europe.

 

Israel Energy Sector

 

Many articles were published in Shalom Life about the Energy Sector in Israel. Momentarily, Israel relies on natural gas that is supplied by Egypt via EMG, an Egyptian gas supplier. Politically the uncertainty will urge the Israeli leadership to accelerate the development of "Tamar" and "Leviathan" and the shares of the partnerships in these gas fields will probably raise.

 

Speaking of EMG, Israeli AMPL is holding 10 per cent of the company; it lost 17.5 per cent of its value in only one day. Not surprising after hearing that the Egyptian business elite fled their country and are now following their homeland news from peaceful Dubai.

 

Opportunities

 

Is it time to run from the market or time to look for some opportunities. During such times there is no economic rationality; it’s a market of the "Cowards" and "Greedy".

 

Those who get into panic will sell for any price they are offered. The opportunistic will pick up cheap and hot commodities which they will hold until after the riots ease or cease and profit from the sell.

 

Summary

 

The Egyptian turmoil has a direct impact on our immediate expenses and on our savings. An increase in the tensions, domino effect in the Middle East and a long term instability which may include military conflicts may pound the markets around the globe. Such an event will definitely affect the pockets and bank accounts of each one of us.

 

This article does not recommend investing in the capital market.



Related articles: (Egypt, Israel, Economy, World)




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