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Conclusion: Watching the Egyptian elections in August will be an early leading indicator on whether or not the Middle Eastern regimes can peacefully transition.


Position: Long oil via the eft OIL

Since the onset of civil unrest in the Middle East, beginning with the Jasmine Revolution in Tunisia, our consistent view has been that the Jasmine Revolution will spread throughout the region.  Over the course of the last three months, this has played out in spades.  In the longer term, the geopolitical outcome of the mass civil unrest in the Middle East remains largely unknown.

Look no further than Egypt for a prime example of this uncertainty. While the people of Egypt, broadly speaking, were elated when long term President Hosni Mubarak stepped down on February 11th, the future of Egypt continues to remain cloudy. Egypt remains incredibly relevant due to its place as an important American ally in the region and its role in global commerce as the home of the Suez Canal. 

In many ways, Egypt will be a real litmus test for the Middle East.  With 85 million people, it is the largest country in the region and geographically it is very central.   Furthermore, Egypt does not have any major tribal or sectarian issues, like many sovereign states in the Middle East, so it should have the best chance at a peaceful and democratic transition.  Not dissimilar to Egypt’s role in the late 1970s when it was the first Arab nation to officially recognize Israel via the 1979 Egypt-Israel Peace Treaty, Egypt’s leadership may usher in a new era in the Middle East.

Currently, Egypt is being led by the Egyptian military, who assumed control after President Mubarak stepped down from office.  In theory, this is a positive for the West as the United States is a major funding source for the Egyptian military to the tune of $1BN+ per year by some estimates.  That said, following the August elections in Egypt, the Egyptian military will no longer be in control.

The key perceived risk with the August election is that the Muslim Brotherhood will gain control of Egypt.  While the most recent public comments from The Muslim Brotherhood (on their website ikhwanweb.com) were related to Syria, they clearly emphasized the group’s position towards Israel and the United States.  The key excerpt from the release is as follows:

“The Brotherhood treasures Syria's good position as a pillar of resistance, embracing Palestinian rights for liberating the land, supporting the armed resistance, embracing the stances of Palestinian faction leaders, and Palestinian and Lebanese legitimate rights while being against the Zionist-American Greater Middle East project.”


This is clearly not the most encouraging comment as it relates to peaceful co-existence with Israel.

In the 2005 parliamentary elections in Egypt, which were marred with fraud, the Muslim Brotherhood won 20% of the seats and was the largest opposition bloc to President Mubarak.  While the Muslim Brotherhood doesn’t represent the largest percentage of the Egyptian population, more than 90% of the population is Muslim and on some level identifies with this group.  Further, the Muslim Brotherhood is the most organized political entity, which will be a key advantage in the upcoming August elections.  Secretary of State Clinton highlighted this risk this weekend in The New Yorker when she commented on a recent meeting in Egypt:

“I looked at these twenty young people around the table, and they were complaining about how the elections are going to be held, and the Muslim Brotherhood and the Islamists are so well organized, and the remnants of the old National Democratic Party are so well organized. I said, ‘So, well, are you organizing? Do you have an umbrella group that is going to represent the youth of Egypt? Do you have a political agenda?’ And they all looked up and said no. It made my heart sink.’”


As noted, in many ways Egypt remains both a key to future stability in the region and, via its upcoming elections, a crystal ball into the future.  Beyond Egypt, whose outlook remains precarious, the rest of MENA has an even less stable intermediate term political outlook.  We’ve summarized some of the key recent events below.

Libya – Reports from the weekend have suggested marginal progress by the Libyan rebels as Gadhafi’s forces have withdrawn from the port city of Misrata.  This was supported by the first U.S. Predator drone strikes, some of which occurred on Colonel Gaddafi’s personal compound.  Despite these events, one thing is clear, the NATO intervention, which began in late March, has been largely ineffective due to its limited engagement and unclear goals.  Absent a larger role from NATO, which would likely be led by the United States, it seems unlikely that Gaddafi will be ousted anytime soon and a deadlock is likely to remain the status quo well into the summer.

Syria - Over the weekend, the Syrian army forcefully repressed protestors and “shot their way” into the southern city of Daraa to crack down on anti-government protestors. These military activities were continuing this morning.  Further, security forces encircled certain Damascus suburbs this weekend, including Douma and Madaamiya.  In response, the White House issued the fifth in a series of statements, with the first on March 24th, that denounced Syria’s actions.  So far, the denouncements have had little effect as the government continues to take more aggressive actions against popular unrest.

Bahrain – Saudi troops have rolled into Bahrain to settle street demonstrations.  Conversely, Iran has encouraged the protestors in Bahrain.  The derivative impact of this has been calls from the Kuwaiti parliament for the Gulf Cooperation Council to liberate certain indigenous groups from Iran, which has led to an acceleration of tensions between Iran and other Arab states.

On March 23rd we gave a presentation of our outlook for crude oil and used the following quote from Tom Friedman:

“One thing I can tell you about Egypt: it is not Las Vegas. What happens in Egypt does not stay in Egypt.”


This point continues to hold true, especially as the August elections loom in the land of the pharaohs.

Daryl G. Jones

Managing Director