Sean O'Grady: Egypt's troubles look likely to give us all a new 'oil shock'

Analysis: In many ways events in Egypt are reminiscent of the Iranian revolution of 1979

Whatever the purely political impact of the unrest in Egypt proves to be, it is pretty much the last thing a fragile world economy needs now. It will trigger more inflation, higher interest rates to tame it, falls in stock markets and a further hit to standards of living.

The effect on China, in particular, could be especially dramatic, as the country has such an insatiable appetite for fossil fuels.

Already the turmoil in Cairo is turbocharging spiralling oil prices, up 4 per cent at the end of last week. Oil is again flirting with the $100 a barrel "psychological barrier", and further rises are sure to accelerate inflation here and drain even more spending power from the Western economies.

The Governor of the Bank of England, Mervyn King, has warned that inflation would hit 5 per cent, and the recovery is visibly stalling. Higher interest rates – when we least need them – suddenly seem more likely.

It is anyone's guess as to where all this will lead – the $200 barrel of oil and 10 per cent UK inflation? That's probably alarmist, and the effects are essentially unknowable in detail; but they will not be good.

Although Egypt produces no oil, some 2 per cent of global oil supplies pass through the Suez Canal or the parallel pipeline linking the Red Sea to the Mediterranean.

In addition, some 8 per cent of the world's traded goods also pass through the Suez Canal, which has been a vital conduit for trade since it opened in 1869.

Indeed, so important was the canal to the British and French that they staged their own illegal – and disastrously bodged – invasion of the canal zone in 1956 to prevent the Egyptian dictator, Abdel Nasser, from having his foot on the throat of the European economy.

War then and in 1967 closed the canal, in the latter case for eight years, forcing container ships to go all the way around Africa via the Cape of Good Hope. It would be an expensive detour for Japanese cars, New Zealand butter and Korean televisions destined for British consumers.

There is also the possibility that the revolutionary examples of Tunisia and Egypt could spread to the resource-rich nations of the Maghreb – Algeria (natural gas) and Libya (oil), or even the Gulf states.

A fundamentalist regime in Cairo would also threaten peace in the Middle East generally, again something that always makes oil more expensive. As a footnote, there is also cotton, which has also seen massive inflation in recent months. Egypt is a major producer.

In many ways events in Egypt are reminiscent of the Iranian revolution of 1979, the last time the world suffered a severe "oil shock". Then, the price doubled to almost $150 a barrel – adjusting for inflation – a peak that was not seen again until the brief spike in 2008.

Although the loss of Iranian oil was the main cause, and not comparable to now, the panic-buying on commodity markets and sense of economic doom certainly is. It is not a happy precedent.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence