Thumbnail Sketch of the Egyptian Crisis

Several things are worth noting about the unfolding Egyptian political crisis.

The possibility that political instability will force closure of the Suez Canal is real but remote at present.  Whatever successor regime may follow the current one has little incentive to turn off Suez transit unless it wishes to invite international intervention.  Read history for details on the last Suez crisis.

Certain classes of supertankers are too large to fit through the Suez Canal anyway, so shippers owning VLCC ships and larger will be largely unaffected by a potential closure.  Suezmax and smaller ships will face rerouting from Asia to Europe.  Look for smaller carriers to start scrambling to line up hedges against higher rates from suddenly longer routes.

The Egyptian business elite has probably already moved significant capital out of the country.  Remaining direct investment of note is thus probably held by foreign investors. Egypt’s own fiscal situation will grow progressively more perilous the longer this crisis lasts.  The Egyptian stock market is down and credit default swaps on its sovereign debt are up.  That is a recipe for capital flight.  A successor regime may impose capital controls to prevent such flight if the country’s foreign reserves are depleted.  Companies with significant Egyptian exposure (like Apache Corp. (APA), with 30% of its production from Egypt) should probably start hedging against the potential for nationalization of their assets.

Full disclosure:  No positions in Egyptian equities, bonds, or other instruments at this time.  No position in APA.

About Anthony Alfidi 128 Articles

Affiliation: Alfidi Capital LLC

Anthony Alfidi is the Founder and CEO of Alfidi Capital. His firm publishes free investment research with honesty and humor.

Mr. Alfidi holds a Bachelor's degree in human resource management from the University of Notre Dame (cum laude) and an MBA in finance from the University of San Francisco. He is a life member of Beta Gamma Sigma, the academic honor society for business majors. He has been a private investor since the 1990s.

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