By Robert Dilenschneider
At this writing there are many moving parts in Egypt, and indeed throughout the Middle East, where several countries are under pressure. No one can predict the outcome and the stakes are incredibly high for the region and the world.
One thing is certain — life, the economy and politics are most likely never going to be the same again. The smartest understand this and are right now reflecting 24/7 on their options.
Less than three weeks ago, President Mubarak moved to place his son in succession. Few in leadership positions in Egypt thought well of this move, which was especially unpopular among the nation's ordinary citizens. By most accounts, that option has been removed, but elections remain scheduled in September.
However, given events of the past few days, the issues now have grown far deeper and more complex for Egypt, the entire Middle East region and beyond. What is taking place in Egypt right now, and in other nations in the region as well, is far more than we are reading and seeing in the news. For one thing, a good deal of the coverage is based on English-language sources. We may not always see or understand what other voices are saying, and that includes the Muslim Brotherhood, Hamas, Al-Qaeda and others who may be trying to affect a revolutionary result.
The stakes, not just for the Middle East, but for the rest of the world, are huge. Bear in mind that Egypt signed the first peace treaty with Israel among Arab nations (later joined by Jordan) and has been able to maintain constructive dialogue with the Palestinians. The populace behind this uprising in Egypt—and it is substantial—has legitimate complaints: the pain of high unemployment, the lack of opportunity for Arab youth, the shame on the part of many in the Muslim world that people there have been held back from the modern era, religion, and, finally, the justified perception that much of the leadership, long entrenched in many parts of the Middle East, is corrupt.
But there is another element stoking the fires of revolution with a sinister agenda. Sources suggest considerable funding is pouring into Egypt and elsewhere to incite protesters, and there remains the prospect that outsiders may seek to exploit the chaos and unrest for their own ends. Consequently, governments and employers are airlifting expatriates and their families in strife-torn areas out of Egypt.
Look for perilous and difficult times ahead. This is a serious test for the Obama administration and for the leadership of Western Europe.
Implications for business
We could be looking at major changes in the region that will only add considerable risk for anyone doing business there. Israel is clearly in a pressured position. Energy costs are likely to increase. Oil prices surged after the initial violence then flattened as OPEC made calming statements and traders adopted a wait-and-see posture. Indeed, there is a great deal that cannot be perceived now, but could prove quite negative over the fullness of time.
Multinationals with assets in Egypt and in the region face crucial choices and decisions on travel and communications. Egypt has broken precedent by interrupting the Internet, social networking and cell phones. This has practical implications for businesses trying to stay in touch with their people and operations. It underscores the exposure of public or private voice and data networks.
The essential strategic asset, the Suez Canal, has been given scant attention beyond the idea that energy costs may be affected, even though Egypt itself is not a major oil producer. Shipping disruption in the Canal would have highly destabilizing effect on oil prices and availability. Could we stand by and let this critical waterway fall into unstable hands, as unlikely as it seems right now?
And where do we go from here? The Ivory Coast, Sudan and Tunisia are not behind us by any means. Yemen, Lebanon and Jordan are on the brink. The aspirational hopes for democracy and the push against repressive regimes can only be encouraged by what is happening. And looking further, whether it is Mexico or Indonesia, the demographics—a surging youth population unable to get jobs—present the same ingredients for dramatic change.
Meanwhile, riots continue and bigger protests are expected during the next day or two. Some experts note that Egypt’s CDS prices are exploding (along with those in Tunisia and Lebanon). What does this portend for Egypt’s sovereign debt?
The banks most exposed to Egyptian debt are in the UK and France, according to Bloomberg. But, it’s obvious that not only France and the UK are exposed. There are six countries with over a billion in banking sector claims on Egypt, as noted by BIS.
They include:
UK - $10.7 billion
Italy - $6.3 billion
U.S. - $5.4 billion
Germany - $2.5 billion
Switzerland - $1.1 billion
Greece - $1.0 billion
What banks, in particular, are exposed? Societe Generale seems to have very large exposure, with $5.6 billion in loans in the country, according to Bloomberg.
BNP Paribas, another French bank, is assumed to have a large exposure and its stock slid in European trading. HSBC and Standard Chartered are seen as the British banks with the most exposure, according to the IHT. Barclays also has significant operations in Egypt.
The unrest has relevance far beyond just the Middle East. The events of the past week have left the Obama administration flat-footed. Support for the Mubarak regime has been a cornerstone of U.S. Middle-East strategy for 30 years.
In other areas of the world the U.S. still relies on “strong-men” to maintain stability. As the administration struggles to craft a response to the immediate crisis, it also faces a more profound strategic question: Is current U.S. foreign policy strategy in the Middle East, South Asia and other areas of the world sustainable in the era of the Flash Revolution?
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Robert
Dilenschneider runs The Dilenschneider Group in New York.
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Joe Honick, GMA International Ltd (2/03):
Mr. Dilenschneider is certainly one of our more erudite and rational contributors here, so my comments should be seen as additonal rather than critical. I would suggest that some of the lessons of the seemingly grassroots uprisings in those other countries have the kinds of elements that should not be ignored here at home. Our own recession may have bottomed out for certain select segments of the nation but hardly for the 9.4% who remain unemployed and the families who make that number even greater when the numbers are calculated.
Add to that the less than acceptable treatment being accorded returning veterans who have been repeatedly deployed to conflicts that have no apparent end and the costs associated in terms of services, money and lives, and you can see where unrest can take root even in this great nation of ours as it has on numerous occasions when too little attention was paid to fundamental problems affecting millions of people. So, even as Mr. Dilenschneider intelligently takes in the larger worldwide scope of serious concerns, our own turf might well be included when we know only too well how the virus of organized uprisings can embolden and feed the frustrations of people elswhere as the strains of life ask "Hey , how about us?" We are not immune .
Wes Pedersen (3/15):
Joe, I am with you 100 percent on this: If the economy continues to worsen and a large segment of the country continues to suffer, we will see riots in the streets as never before.
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