With the political unrest in Egypt oil prices are on the charge once again – oil is now over $100/barrel. Although Egypt is not a significant producer of oil it does influence oil prices because of its role in distribution. The following are significant:
1. Egypt is a crucial transit route for Middle Eastern oil to global markets via the Suez Canal and
2. Egypt is home to the Sumed pipeline linking the Red Sea to the Mediterranean.
Take out either of these routes, and you’re looking at tankers being diverted 9,600 kilometers around the southern tip of Africa — not to mention 2 million barrels per day of oil slipping offline. However is it more speculation than supply and demand? Remember in June 2008 oil prices reached $147/barrel. Speculation does influence oil prices, but the main issue here is that geopolitics is prevalent.
Geopolitics – traditionally indicates the links and causal relationships between political power and geographic space; in concrete terms it is often seen as a body of thought assaying specific strategic prescriptions based on the relative importance of land power and sea power in world history. Wikipedia
However commentators have indicated that the increase in oil prices, because of the unrest in Egypt, will pale into insignificance if the geopolitical situation in the Middle East erupts.