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Why Egypt Matters To You & Your Money

30 January 2011 9 Comments

The uprising in Egypt is big news around the world these days, and while most Americans dismiss the news as just another event over there, the reality is that it is an important event and it represents something bigger.

First, let’s discuss the unrest over there. American media is quickly to describe the uprising as a political event where an oppressed people are finally attempting to throw off the chains of an oppressive government and usher in American style democracy. This is a very myopic point of view. While I don’t doubt some element of political unrest, it is definitely more economic than political. These people are content with whatever form of government as long as the economy is fine and they have food on the table.

The main catalyst for the current unrest is the combination of unemployment and higher food prices. Start taking away someone’s bread, and all of a sudden they get very political.

Interestingly, I read that in Kuwait, every citizen there is paid $3,500 a year and given free food to essentially accept to the current regime. While that sounds odd and outrageous, I would ask you to consider how different is it in America really? How many people are on food stamps here? 40-something million. How many people that don’t pay taxes get money from the government in the form of a credit or rebate? How different are we?

Ok, back to the main point… why does Egypt matter?

The ultimate reason why Egypt matters is that this part of the world is very important with regards to oil. And, if you live in the modern world, you undoubtedly use a lot of it. Lots of your money goes toward oil and indirectly most of the products you buy have a embedded oil cost either based on production or transportation.

If oil goes significantly higher, your standard of living absolutely goes lower.

The main question is whether or not Egypt is an isolated incident or if this is something we will see more of in that part of the world. There is some news that some unrest of Saudi Arabia is sort of materializing. This would be a nightmare for oil prices.

The worst thing for Americans would be if America’s influence in the region disintegrates. There are indeed regimes in the middle east that are friendly to American interests and this is crucial for cheap oil. If unrest spreads and pro-America regimes are toppled, cheap oil is no more. This doesn’t even factor in the monetary and dollar issues that will force oil prices to rise.

The bottom line is that Egypt is just one more reason that you have to have some exposure to oil in your investment mix. Long term, oil will go up. It will impact your wallet, so make sure you offset it somewhat by having oil exposure in your portfolio.

9 Comments »

  • Luke said:

    Invest in a good bike.

  • Peter said:

    I think the problems rising in the Middle East could very well be the beginnings of another round of chaos and violence in that part of the world. The events in Egypt are already a follow on from what happened in Tunisia and already reports of other protests in Sudan and other parts of the Middle East. Who knows what will come next but given the high level of importance this part of the world plays in global geo-politics you can bet it will come to affect all of us.

  • Our Tiny House said:

    While in theory this is true, it is really silly to talk about without no sense of magnitude.

    First off, is the increase in oil prices gonna be short term or long term. Unless oil fields get set on fire, probably short term.

    Second, how far up is "up"? Even if you could attribute the current oil spike to Egypt (which you can't) it wouldn't amount to more than $10/barrel. And this is pretty much at the height of uncertainty over there.

    OK so to be generous, let's say Egypt's democratic uprising increases the price of your oil by $10/b for 6 months. If I remember right, the average American consumes about 20 barrels a year.

    So rough guess, you might end up paying $100/year more (or less, depending on your lifestyle).

    I could be wrong, but I'd appreciate authors who put their claims in some sort of context. Otherwise, the claims are useless at best, inflammatory at worst.

  • Our Tiny House said:

    Looks like I was off by a factor of ten:

    Oil price hits 10-week low amid Egyptian political drama http://www.thehindu.com/business/markets/article1

    So *maybe* $10 more a person to welcome the world's newest democracy. Pretty good deal, I'd say. How much is 'democracy' in Iraq costing us again?

  • Bowmanave said:

    There is a documentary on You Tube that was produced in 2008 by Aljazeera English on Egypt. The title is "A Nation in Waiting". It provides a lot of background on the situations that have lead up to the current rebellion in Egypt. It provides a lot of background information from a different perspective.

    This situation is going to have an ripple effect on the rest of the world. I think that it is just a matter of time before the current government topples.

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  • geldsklave said:

    it is definitely more economic than political. These people are content with whatever form of government as long as the economy is fine and they have food on the table.

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