KNOWLEDGE CENTER

Knowledge Center Archive

Feb
10
2011

Oil, Water, Food and Money: A Macro View of Political Tensions

By Sean P. Simko, SEI Fixed Income Portfolio Management; Sam Hillier, SEI Fixed Income Portfolio Management; James Solloway, CFA, Managing Director, Senior Portfolio Manager

Ongoing political turmoil in Egypt led to the temporary closure of that country’s stock market and banking system and sparked a short-term flight-to-quality move in the bond markets (with investors buying U.S. Treasury securities) reminiscent of the eurozone crisis. Moody’s cut the country’s credit rating to Ba2 from Ba1, moving it one notch further into speculative territory. Regional unrest (Algeria, Ivory Coast, Lebanon, Jordan, Morocco, Oman, Sudan, Syria, Tunisia and Yemen) has raised questions about implications for financial markets.

Oil is the primary fuel of the global economy. Even the prospect of a disruption of the flow of this precious commodity can cause prices to rise dramatically. Food prices are a significant factor in many of the countries experiencing social unrest and political upheaval. According to a senior economist for the United Nations’ Food and Agriculture Organization (FAO), the political instability caused by rising prices could intensify if importing governments were to increase food demand in an attempt to head off social unrest or merely replenish depressed food stocks.

The market is expected to remain closed until the week of February 13, while banks reopened on Sunday, February 6. A run on Egypt’s currency or debt would cause considerable harm to its economy and financial system.

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Oil, Water, Food and Money: A Macro View of Political Tensions

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