What unrest in Egypt means for oil prices at home

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David Holt
President, Consumer Energy Alliance
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      David Holt

      David Holt is president of the non-profit organization, Consumer Energy Alliance. Consumer Energy Alliance was formed to help support the thoughtful utilization of all domestic energy resources to improve domestic energy security and reduce consumer prices. The mission of Consumer Energy Alliance is to improve consumer understanding of our nation's energy security, including the need to reduce reliance on imported oil and natural gas, maintain reasonable energy prices for consumers, and continue efforts to diversify our energy resources.

      As part of its efforts to build dialogue between consumers and the energy sector, Consumer Energy Alliance played a key role in the recent Mineral Management Service’s (MMS) Five Year Plan for the Outer Continental Shelf. Working with an expansive coalition of energy and consumer groups, CEA helped deliver tens of thousands of public comments in support of thoughtful offshore oil & gas development – including the areas offshore Alaska and Virginia.

      Consumer Energy Alliance now has more than 115 consumer and energy groups as part of its Alliance. Through its various activities, CEA works to continue to expand dialogue and develop joint messaging among the energy and consuming sectors.

Americans are all too familiar with the ways political instability in oil-rich places like Iraq and Saudi Arabia impacts 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 per day of oil being transported to points west.

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 our 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’ll be hard to mitigate the effects of overseas events on our energy prices.

David Holt is the president of Consumer Energy Alliance.