Towards the end of last week the global financial markets sold off for the largest one day decline since late fall. Most of the concern was the political unrest in the Middle East, particularly within Egypt. The Muslim Brotherhood's opposition, lead by Noble Prize winner ElBaradei, made demands that President Mubarak needs to resign immediately to make way for the new political future of the the country. In addition, US Secretary of State Hillary Clinton, in an attempt to distance the US government from the current regime, called for a transition to a real democracy. Needless to say, Egyptians of all denominations are rioting and causing havoc in most parts of the country.
The United States and Egypt have been political allies for the better part of three decades, in which Egypt has enabled the US to have a significant influence in the stability of the Middle East. With the anticipated departure of Egypt's President Mubarak, most political analysts are concerned the Egyptian Army may not follow suit and remain loyal to Mubarak.
The added turmoil in the Middle East gave way to a spike in crude oil prices across the globe causing more economic uncertainty and possibly derailing the current economic expansion. Over the past two months the oil futures markets have been climbing to levels that have not been seen since the financial crisis in 2007, just before the financial crisis. Many strategists are concerned that because the oil markets are trading at lofty levels, any geopolitical uncertainty in Middle East will create a supply shock and send prices back above the 100 dollar level. I believe if this occurs it will ultimately erode the current economic recovery, and send equity prices in a violent downward spiral.
In recent weeks I have stated that the US Equity markets have been trading at extreme levels, pricing in a near perfect economic recovery throughout the world. If the Egyptian power struggle continues, and the US loses its influence on the local Egyptian government, this will result in a shift of power towards the Muslim Brotherhood. This will certainly cause more political unrest and more problems for the United States and its quest for Middle East stability.
