Americans are all too familiar with the ways political instability in oil rich places like Iraq and Saudi Arabia impact the price they pay for gasoline and heating oil. This week, amid widespread unrest in Egypt, we’ve gotten a sobering reminder that even countries that are not large oil producers can influence global crude oil prices. Indeed, it is a small and tightly interconnected world when it comes to the politics of oil and gas.
Crude oil prices have been volatile, surpassing $100 a barrel, and most people are pointing to the situation in Egypt for an explanation. In many ways, this is a familiar story that has been playing out for decades in different parts of the world. The difference this time is that Egypt has very little oil. Its ability to influence world oil prices results from its control of the Suez Canal, which as a key waterway connecting the Middle East and Europe, is the gateway for two million barrels of oil being transported to points west per day.
While different world leaders in the past have attempted to influence oil prices for their own gain, this is not what is happening in Egypt, where local residents are more worried about food prices there than gasoline prices here. But if increased volatility in world crude prices was a totally unintended consequence of the uprising, it is no less significant to oil-dependent economies like our own. In short, Egypt has caught us all off guard.
One of the many lessons of the turmoil rapidly unfolding in Egypt is that, when it comes to the complex geopolitics of oil, it is hard to predict where the next threat will come from. We focus directly on a relatively small but influential number of oil-exporting nations, often failing to recognize how dependence on foreign oil also leaves us vulnerable to events occurring elsewhere. As a country, we should be able to react to events in Egypt without the impact on oil being our primary concern. Unfortunately, until we have a smart, balanced energy policy, it will be harder to mitigate the effects of overseas events on our energy prices.