Updated February 21, 2011The recent public protests in Egypt and resulting resignation of long-time Egyptian President Hosni Mubarak are unlikely to have a significant impact on global oil and natural gas prices, according to a new report released by the Congressional Research Service (CRS).
While the perceived instability in the oil-rich Middle East and the Arab League might cause some minor price increases, they will likely be temporary, writes CRS energy policy analyst Michael Ratner in his report, Implications of Egypt's Turmoil on Global Oil and Natural Gas Supply.
Since the protests in Egypt and resignation of Mubarak, similar unrest has spread to nearby oil producing countries in the Middle East and Africa, including Libya, Bahrain and Yemen. Prolonged instability in the region could result on what Ratner calls "upward price pressures" in the oil and gas markets.
Egypt Not a Global Oil Player
Egypt is far from a major oil exporter. In fact, according to the U.S. Energy Information Administration (EIA), Egypt exported only 145,000 barrels of crude oil per day during 2010 and now depends on imported oil to meet its domestic energy needs. The U.S. currently imports only about 16,000 barrels of Egyptian oil per day.
For sake of comparison, Egypt's Red Sea neighbor Saudi Arabia exported 7.3 million barrels of oil per day in 2009, sending 1 million barrels per day to the United States, or about 9% of total U.S. petroleum imports.
As a result of Egypt's status as, at best, a minor exporter of oil Ratner concludes that any temporary instability in the country's petroleum industry due to the change in government will not have a significant impact on global oil prices. "The most serious impact would be on regional recipients of its natural gas exports," he writes in his CRS report.
But What About the Suez Canal?
As Ratner notes, however, Egypt does control the flow of shipping through the 120-mile-long Suez Canal - the only navigable connection between the Red Sea and Gulf of Suez with the Mediterranean Sea. Could this cause a hike in oil prices?
While almost 16,500 ships went through the Suez Canal during 2010, only about 20% of them carried crude oil and 5% carried liquid natural gas, according to the EIA. In spite of ongoing projects to enlarge it, the Suez Canal remains too narrow to handle the largest classes of oil tankers.
In short, concludes Ratner, the Suez Canal is underutilized for oil and gas transport and even its total closure would have only a limited, short-term upward impact on oil prices. As Reatner notes, "Both the oil and natural gas industry would, over time, find alternative routes to circumvent the canal."