Special Report: How Unrest in Egypt Will Affect Gasoline Prices

There has been a lot of speculation as to how the unrest in Egypt may impact gasoline prices here in the USA.

But is Egypt really that important to world oil supplies? The layman thinks of the middle east as one giant oil field, so it is easy to make hyperbolic statements about the immediate future for oil. However, the reality is that Egypt doesn’t produce much oil, and is a net importer.

Then why have oil prices spiked?  There are valid concerns, and the reasons may surprise you.


The biggest concern is that the Suez canal may shut down due to supply shortages that are spreading throughout the country. Many Egyptians are already afraid to venture out, and NPR reported yesterday that there are gas shortages in Egypt itself, compounding the problem.

The Suez Canal is used to transport 1.8 million barrels of oil per day. For comparison, the Gulf of Mexico offshore rigs produce about 5.4 million barrels today, with capacity approaching 8 million. If we recall the impact hurricane Katrina had on oil prices, you might jump to the conclusion of “18 million is a whole lot more than 5.4 million”, and become fearful of the impact.

However, the difference is that Katrina required the shutdown of the offshore rigs. A closure of the Suez Canal will only require a re-route. That would disrupt supplies and cause a price rise, but after a couple of weeks tankers would be back on track taking longer routes around Africa.

The Real Oil Concern

The real concern is that unrest will spread to other countries in the region. What started as an uprising in Tunisia spread to Egypt, and has even had repercussions in Jordan. And most who have followed news in the last decade know that there is major strife in Saudi Arabia, where the government is looked at as corrupt, and where Islamic extremists have a toehold.

Saudi Arabia is the domino to watch. 7 million barrels of oil are exported from Saudi Arabia every day. If unrest develops and their delivery and transportation systems are impacted, there will be an immediate and major impact to world oil prices. OPEC could increase some production, but not enough to account for a 7 million barrel deficit.

What You Can Do

As long as there is unrest in the Middle East; as long as there are hurricanes in the Gulf of Mexico, and as long as oil becomes harder to reach and more environmentally damaging to extract, you can expect occasional major price swings with an underlying upward price trend.

An overall reduction in oil consumption will help dampen these hits. If the world demand is less than world oil production capacity, there is some margin for these events. Drive slower, avoid jackrabbit starts, maintain proper tire pressure, carpool, and telecommute when possible. Consider this – an 18 MPG SUV driving 40 miles round trip to work 240 days a year would save $573 (176 gallons) over that time by slowing from 79 mph to 65 mph.

Also, remember more plastics require oil for production, so recycle. Imported goods consume oil, so buy local as much as possible.

Medium term, make your next car a more efficient model and skip the large tire options. If the price premium on electric and hybrid cars is too much, consider diesel. Diesel cars, such as my Volkswagen Jetta Sportwagen, can get 40+ mpg highway. My Sportwagen frequently gets 45 – 48 mpg on my 22 mile commute, without sacrificing size and utility. Think of more fuel efficient cars as a insurance against rising gas prices.

A car that gets 35 mpg combined city/highway will save 170 gallons ($550) per year compared to a 25 mpg car (assuming 15000 miles per year). That also assumes $3.25 gas – it is probably safe to say prices will be closer to $4, meaning a much larger savings. Do the math next time you are looking to buy – it may surprise you.