Oil rised above US$100 per barrel.
Gold and silver rallied.
Stocks markets cannot find their footing, volatility is rife.
Investors must be edgy about the recent Libya unrest which seems to worsen everyday. The unrest in Middle East seems to hit a tipping point where it saw a successful protest in Egypt, forcing Hosni Mubarak to give up his throne after 30 years. The success has inspired neighbouring countries to catch the protest fever, to demonstrate their years of displeasure about the slow progress of their nations, and the incompetency of their rulers.
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Let’s start with Egypt, since they started it (protest). Their main economic drivers are agriculture (wheat and corn), industrial (automobiles, chemicals, consumer electronics, steel, textiles, clothing, construction) and services (banking, communications, transport, tourism). Egypt exports mainly to United States (9.7%) and Italy (9.5%). For imports, main partners are United States (11.7%) and China (9.7%). In terms of oil production, Egypt is ranked 28th place, with Malaysia at 27th place. To me, the unrest would not have a big impact to the world’s economy.
For Libya, the main economic driver is oil production and export. Libya is ranked 18 in oil production in the world. They do not seem to have other contribution to the world except oil and they mainly import from Europe. This would mean bad business for the Europeans. Libya is an OPEC member and based on figures in 2007, Libya contributes 5.58% of OPEC output. Not significant I would say.
So what is the main problem? Why is oil price rising? To me, it is not about the 2 countries. It is about the entire Middle East and North Africa that are catching the protest fever. If uprising spreads to other major oil producing countries, that would be a worry. If more countries set into chaos, the shipping around the Suez Canal may get affected and that would be a worry for the world. Goods get seized, insurance skyrockets, and eventually no one dares to take the risk. No shipping would also mean no oil to other parts of the world. Supply gets the squeeze.
Bahrain – fear of unrest rising. King Hamad bin Isa Al Khalifa has ruled for 12 years. Prime Minister Prince Khalifa bin Salman Al Khalifa has been in office for 40 years.
Yemen – fear of unrest rising. President Ali Abdullah Saleh in office for 21 years. No oil production. Right beside the Gulf of Aden. Quoting Wikipedia, “The Gulf of Aden is a vital waterway for shipping, especially for Persian Gulf oil, making it an integral waterway in the world economy. Approximately 11 percent of the world’s seaborne petroleum passes through the Gulf of Aden on its way to the Suez Canal or to regional refineries. The main ports along the gulf are Aden in Yemen, Djibouti City in Djibouti, and Zeila, Berbera, and Bosaso in Somalia.”
Other major producing countries in the region (rank in oil production) – Saudi Arabia (1st), Iran (4th), UAE (8th), Kuwait (9th) and Iraq (13th).
Was their market correction caused by these unrests? I am not sure and no one will know the real reason. I believe the stock market would correct even the unrest did not happen. There would be another event that the media or analysts would tie the reason to. There are just many events happening around the world everyday. This also means there are plenty of excuses we can find. We love to explain things, and attach meanings to make us feel in control.
My point is the stock market has not indicated a reversal in its upward trend.