Egypt is on the verge of taking the first steps towards a new future. The implications of this will be felt in the Middle East and beyond as the struggle for power plays out. Very different paths lie ahead. But what seems certain is that Husni Mubarek’s 30 year term as president will end early in 2011 due to the disaffection of his people, fed up with Egypt’s rigged elections and a broken economy.
The happy path (for the West) is one where the current regime is replaced by a democratic coalition government that does includes the Muslim brotherhood, but with new president of Mohamed Mustafa ElBaradei, Nobel peace laureate and ex UN weapons inspector – this is someone everyone can do business with, in the Middle East, the USA and Europe.
A less certain future awaits if the Egyptian people made a more radical decision and choose the moderate Muslim Brotherhood. While this will be regarded as ‘business as usual’ for much of Europe, it will no doubt make more of a difference in relations between Israel and Egypt. Egypt would naturally become more closely aligned politically with governments in the Lebanon (Hezbollah), Syria and Iran and Palestinian Authorities, Hamas, which incidentally was formed in 1987 as a Palestinian offshoot of the Muslim Brotherhood.
So how will these affect the markets?
The uncertainty creates risk and that means volatility in oil prices. Therefore expect the oil companies and the merchant banks to post good results this year. The oil companies will be quick to raise prices in response to the ‘crisis’ and slow to bring them back down again. As for the investment banks, then the uncertainty will mean more action in the options and futures markets and ultimately greater profits through doing more business at greater margins.
As an investor, as well as the oil companies and banking being good choices, then there is always the armaments industry: greater tension in the Middle East will no doubt lead to the rearming of the main protagonists, and probably neutral countries in the region as well, in response to the heightening tension.
What other sectors will be winners and losers? Tourism is an interesting one. With a democratic government then tourism should get a boost or a least be flat, whereas with the Muslim Brotherhood in power there will likely be some hesitancy, at least in the short term, about how modestly dressed Western tourists will be welcomed .
Despite its name, the Muslim Brotherhood, does in fact have some female candidates which stood in the elections in November 2010 in response to the change in the law that designated a quota of 32 seats in parliament to women; the Muslim Brotherhood is not the Taliban and Egypt is a completely different country from Afghanistan.
The questions we ask (and we ask these of every political party) are:
“Will it behave in power the way it said it would when it was in opposition?”
“Will it keep its promises?”
“Will it stick to its principles?”
The Egyption people, and the rest of the world, will take a few months to make up its minds about any new regime so expect the a rocky road for oil prices for at lest the first half of the year.