Oil experts have attributed the recent
rally in prices to supply disruptions in Libyaand geopolitical turmoil in Egypt, which some believe could lead to additional disruptions.
Specifically, some traders worry that the ongoing chaos in Cairo could eventually spill into the Suez Canal, one of the most important oil chokepoints in the world.
However, Morgan Stanley’s Adam Longson isn’t too worried about Egypt. He looks back at the recent experience of the Arab Spring:
Egypt: Direct Threat to Oil Supply Likely Overstated
Supply in Egypt has remained relatively insulated from geopolitical events, even during the Arab Spring. With the turmoil occurring in Cairo, nearly 100 miles from the Suez Canal, we believe it is unlikely that flows will be seriously disrupted. Even during the height of the Arab Spring in 2011, there were no disruptions to Egyptian oil production. With the army still in control of Egypt and likely securing port infrastructure and oil production facilities, the situation is unlikely to be different in 2013. In our view, the greatest concern with Egypt should be contagion, but we view Syria as a greater threat on that front. We also see the potential for large-scale wheat imports in an effort to calm civil unrest.
That said, the current round of protests are turning violent and involve strong divisions within the country rather than protests against the government, so the risk of escalation is greater this time round. However, even under a scenario where the Suez Canal is disrupted, we believe that the impact on oil markets would be limited. Suez is not Hormuz. Suez traffic could easily be rerouted around Africa without losing supply. The long sail times would likely cause some short-term issues, but with a glut of tankers available, tanker capacity is unlikely to be a constraint.
As you can see in the chart, there was basically no blip in Egyptian oil supply during the Arab Spring.
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