The following is a guest post
The Libyan uprising has been the focus of international news lately, with insurgents fighting against Muammar al-Gaddafi’s armed forces after violent protests in the Libyan capital, Tripoli. As of this writing, Gaddafi remains in power and has been urged by world leaders — including U.S. President Barak Obama — to step down.
While western nations consider taking steps to counter Gaddafi, who is believed capable of using chemical weapons against Libyan civilians, the rebel forces have resumed oil exports despite the proceeds ending up in Gaddafi’s hands.
Oil Soars on Libyan Turmoil
Because of the Arab nation’s oil production, the most direct effect caused by the political unrest in the Middle East consist of rising oil prices. The prices of all commodities rise when the price of oil goes up, basically because transportation costs increase, which are then added to the price of commodities.
The price of crude oil has gone from under $90 per barrel in mid January, to a recent 30 month high of $103 made on February 24th. The price level for oil had been steady before the protests in Egypt — which saw the end of the 30 year dictatorship of Hosni Mubarak — and started climbing dramatically as developments unfolded in Libya.
Effects of Rising Oil Prices on the World Economy
Because of the world’s major economies dependence on foreign oil — with the United States and the Eurozone leading the pack — rising oil prices may drastically cripple the feeble global economic recovery now underway.
Recent inflation data out of the United Kingdom, the United States, China and the Eurozone, indicate inflation is increasing worldwide. This will pressure central banks to raise interest rates, making money harder to borrow and consequently those nation’s currencies more in demand.
Higher exchange rates for certain currencies often put pressure on those nation’s exports, which tend to decrease the amount of overall sales, weakening the nation’s economy.
Currencies That Benefit From Rising Oil Prices
The currencies of oil producing countries will obviously be the biggest winners with rising oil prices. Net oil producers such as Saudi Arabia, Russia, Norway, Iran, Canada and Mexico will most likely see their working capital appreciate considerably as the price of oil rises.
Conversely, the currencies of nations which import oil, such as the United States, Japan, China and the Eurozone, will be adversely affected by rising oil prices. The U.S. Dollar, the Japanese Yen and the Euro will all be under considerable pressure with rising oil prices.
The current uprisings in the Middle East which began in Tunisia and spread to Egypt, only to increase violently in Libya, appears to be taking hold in many other Middle Eastern nations. This will only increase the price of commodities with oil being the most affected.
Even if you trade with the best forex broker, holding the currencies of oil dependent nations may not provide the security previously associated with those currencies. Being long the commodity currencies such as the Canadian and Australian Dollar against the Euro and the U.S. Dollar, continues making sense.
Furthermore, since some forex fraud may exist among brokers purporting to offer trading in the Libyan Dinar, be sure to check such brokers’ reputation and regulatory status thoroughly. Margin trading is risky and you should consider your objectives carefully before engaging in this activity.
Leave a Reply