Oil, Fear, and Revolution in the Middle East

Everyone has been hearing about it lately.  Look at any news site and it will be the top story if not many of the top five stories.  Ever since Mohamed Al Bouazizi set himself on fire in December to protest Tunisia’s economic situation, revolution has been spreading across the Middle East.  These conflicts are demonstrating how some of the world’s smallest countries can have great effects on the rest of the planet.

The events in the Middle East have been dramatic, in less than two months, the governments of Tunisia and Egypt have been toppled from internal strife and protests for economic reform.  Colonel Gadhafi, the ruler in Libya for over 42 years, is coming under serious assault from his own people who demand his removal.  There have been protests in nine different countries ranging from changing parts of governments to the removal of entire systems.  The Middle East, which has a long history of monarchs and dictators ruling for 30 or more years, is finally hearing a rallying cry from its citizens.  Sadly, many of these protests have become violent.  This has happened most notably in Libya, where several parts of the armed forces have defected in order to help citizens after Gadhafi started firing on unarmed protesters.  Two fighter pilots from Libya actually defected mid-mission after Gadhafi ordered them to bomb protesters.  As sad as that is, an interesting side note has come up. Social media has been a major tool in creating, organizing, and publicizing these uprising and protests.  Egypt’s overthrow of General Mubarek was started with young adults in Egypt creating Facebook events.

The far more noticeable and relevant effect on the rest of the world has been with oil and gas prices.  The economies of the Middle East are based primarily on oil and natural gas and produce a large percentage of the world’s natural gases.  Prices have already exploded because of the strife, most notably in futures exchanges with Brent Crude and WTI Crude futures rising daily and having hit $115 from $90 and $100 from $85 respectively since the start of the year.  This will obviously affect the BRICs and developed nations the most with their heavy reliance on power and gas.  The price of oil is seen by everyone, consumers with their gas tanks, most companies with logistics, and the thousands of products that have oil as a base.  As a side note, it is interesting to point out that Saudi Arabia has already said that it can make up for all the lost production in Libya and other conflicted countries even if supply falls by 1.5 million barrels per day.   Additionally, it is important to point out that anyone who comes to power in one of these nations will have to get the oil field up and running as soon as possible, as it is the livelihood of these nations.  Given that there is significant additional capacity around the world, the likely driver of increased oil prices is the fear and instability in the Middle East region.

Regardless, businesses everywhere are being affected by the events in the Middle East.  While for many, this is bad, for many it is terrific.  Oil companies are being provided with higher and higher margins, their supporting industries will benefit, and competing industries will benefit.  Alternative energies will be given a closer consideration as oil makes their prices more competitive.  Who knows, maybe next year you will have solar panels on your house.