Houston based oil and energy companies are closing down their Egyptian operations in the wake of civil unrest in that country. Both Diamond Offshore Drilling and Transocean closed drilling operations as mounting violence and protests continue against the incumbent ruler, President Hosni Mubarak. The bulk of the violence and disturbances are focused upon Egypt’s capital, Cairo, however the entire country is affected and probably most importantly, this means shipping through the Suez Canal is at risk.
The Houston-based companies which recently announced shut-down of operations have also stated that they have evacuated employees and their families form the country, or are in the process of doing so. The threat to life and personal safety is currently high, with some protesters even turning on each other as rival factions start to jostle for position after Mubarak finally steps down. So far, the unrest has been relatively bloodless, primarily because the Egyptian army and military have refused to become directly involved; nevertheless, Egypt should be considered a dangerous place right now, particularly for Westerners.
Other major oil operators have followed suit, including British Petroleum and Royal Dutch Shell. Wall Street reaction is muted at the moment, due in large part to the Suez Canal remaining open. The Suez Canal, completed in 1856 by the French, provides for the passage of ships, including oil tankers, between Asia and Europe without the need to go around Africa. The Canal is also considered to be of strategic importance due to this route being the main route taken by oil tankers bring oil from the Middle East to the United States and Europe.
Overall, the unrest in Egypt is going to help push the price of oil higher. Houston trader, Tudor Pickering Holt & Company announced that while oil prices are currently low, the Egyptian unrest is creating greater risk and uncertainty which will be factored in to oil prices, i.e. the price will increase. As that company notes, oil prices are approaching the $100 per barrel range which is good and bad news. Consumers are not likely to be very happy at the prospect of hikes in gas prices, with many pundits touting “$5 a gallon”, which is also going to have severe reactive effect upon the recovering economy and the weak, but rising level of consumer spending. On the other hand domestic oil drillers and lobbyists looking for the US government to improve and speed up the deep-water drilling permit process are likely going to find a more amenable Obama Administration.