The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Egypt and U.S. Economy: Why should the Commonwealth care?

Posted by iusbvision on February 15, 2011

By Lisa Marie Cashman:

From Tahrir Square (know as “Liberation Square”) in modern Cairo, Egypt to Harvard Square in Cambridge, Massachusetts – the epicenter for important Middle East foreign policy at Harvard University, recent geopolitical events in the Middle East have weighed heavily on the minds of politicians, scholars and human rights activists.  Uprisings from a young, educated and social media savvy generation helped fuel the transition from a dictatorship led by Egyptian President Hosni Mubarak to a transition government backed by the Egyptian military to hopefully usher in a viable democratic election and due rule of law process.  One would hope.  So, why is the state of affairs for Egypt important to folks in Massachusetts as well as across the nation?  In the day-to-day activities or our lives, including trudging through the highest unemployment rates in nearly 20 years and the instability of foreign oil dependency, why should we be concerned with what happens in the land of King Tut?

According to leading environmental economist at Cardno ENTRIX, John M. Urbankchuk, globalization of economics sits at the core of our nation’s discussions and decision-making process with respect to U.S. exports. “Egypt is important for a number of reasons not the least of which is the Suez Canal,” says Urbanchuk.  In as much as it is unclear whether the current new administration in Egypt will flourish or flounder, a potential shift toward a fundamental Islamic government would more than likely alter the relations and create tensions between the U.S. and Egypt and our most critical ally, Israel.  Urbanchuk notes with this potential geopolitical change, factors affecting access to trade through the Suez Canal would increase time of delivery of goods and cost for the EU and the U.S. should cargo need to transit around the Horn of Africa.

Since 1869, the Suez Canal –owned and operated by the Suez Canal Authority (SCA) of the Arab Republic of Egypt–has made off-shore trading extremely manageable and profitable for all involved.  International treaty has long afforded the passage to be used by all to create a direct route from the Middle East to Asia and has been used for both war and peaceful purposes. The commodities “food chain” feeds directly through this short cut to allow U.S. exports to flow expeditiously from the Arabian Sea through the Red Sea to the Eastern Mediterranean.

The United States and Egypt have long been tied to the hip economically as well as politically. Good foreign relations between the two has been the mainstay which has kept the flow of oil production steady and the protection of one of our greatest allies, Israel. Urbanchuk further emphasizes the important inter-relationship pointing out in FY 2010 alone, Egypt ranked as our 12th largest market at nearly $1.6 billion. “They are our 4th largest market for corn, 6th largest for wheat, and 7th for soybeans,” calculates Urbanchuk. The question one needs to ask is what would happen if suddenly our trade were hampered by the escalation of extreme resistance by fundamentalist groups seeking to drive Western political influence and oil interests out of the Middle East?

In the 2007, a final report to the Secretary of Energy, entitled, “Hard Truths: Facing the Hard Truths About Energy,” the National Petroleum Council’s special advisory committee to the U.S. Department of Energy (DOE) outlines the importance of everyday life factors that depend on the Middle Eastern and other offshore production of energy. By 2030, the Council projects energy demands will be up by 50-60 percent due to a growing population and desire for improved living. Not only is the United States the largest player in the global energy game, but one of the largest importers of gas and coal and the third largest consumer of oil.  Equally interdependent is our foreign relations with the Middle East and other emerging world governments including India, Russia and China.  As the global market demands expand, the U.S. must not only continue to lead engagement in timely foreign policy to keep open markets, free trade and rule of law embedded in negotiations, but lead by example.

Currently, the Obama Administration seems to have a policy disconnect. On the one hand, in his S.O.T.U. speech, Obama calls for sweeping reforms for energy efficiency and research to end dependency on fossil fuels…which is optimistic at best according to experts in the field.  Experts believe the approach toward less foreign dependency of energy in a stepped manner, will not upset the delicate global inter-dependency energy plays. However, at the current status, much is at stake in the geopolitical landscape including the need to tie-in decision making among Cabinet and U.S. government departments interdependent on intelligence that will strengthen energy security and viability.  In addition, how the new nascent democracies tie into the concept of free trade will be a debate worth watching as more countries join the World Trade Organization (WTO) to formulate and further shape global trade policy.  Acceptance or non-acceptance of free market enterprise may ultimately lead to driving costs of access and production upwards.

To the average U.S. consumer concentrating on getting the kids off to school and putting food on the table, this may seem daunting.  All one has to do is just remember the oil crisis during the Carter Administration and the lines at the gas stations across the country and it all makes sense.  Fueled by the ousting of the Shah and the assumption of a new fundamentalist government lead by a cleric and former prisoner, Ayatollah Khomeini in 1979, America experienced unstable oil prices, high unemployment and a V-8 moment when it came to increasing dependency on foreign oil sources. Should the recent chain of events in Egypt parallel that of Iran whereby this new democratic transition government is eventually squeezed out by cleric intervention after one year in office, a déjà vu in the theatre of Middle Eastern oil production could come into play.

There is much to do domestically with a crushing recession still gripping our nation, yet the United States still must keep its big toe in the cursory depths of the canals and straits which keep us interdependent to a global energy market.

In seeking ways to diversify our energy supply, America still must play the “honest broker” role in the world to help new leaders understand the importance of open trade and free markets. As more suppliers enter the market and use these commodities for political gain, our purse strings will surely incur repeated fluctuations. Will we decide the cost of freedom from foreign oil dependency overtime far outweighs the U.S. becoming isolationist and no longer number one in the world market as the Obama Administration would like us to believe? America must lead by example, or our economy will undoubtedly fall prey to an international trade rollercoaster.

Lisa-Marie is the principal for The Cashman Group specializing in Crisis, Strategic and Political Communications. She is an elected member of her Republican Town Committee since 1999 and political strategist to several congressional and state campaigns.

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