Will the Egypt Uprising Force the Suez to Close?

NEW YORK (TheStreet) -- As the Egyptian uprising grew more violent and chaotic over the last two days, the risks posed to the Suez Canal increased, according to some people involved in the shipping and petroleum industries.

On Friday, though, as street violence eased (Wednesday and Thursday were characterized by clashes between protestors and supposed supporters of the Mubarak regime) and protests in Cairo grew calmer, fears of a Suez disruption again appeared to fade.

Earlier this week, the Egyptian military sent soldiers to protect the pipeline that runs the length of the canal -- called the SuMed pipeline -- and a U.S. military leader suggested that the Pentagon would consider sending troops to the Sinai Peninsula to protect the canal from any disruption prompted by rioting.

Speaking at a conference in London on Tuesday, the chief of U.S. Central Command, Gen. James Mattis, said that if the Suez were to be closed, "We would have to deal with it diplomatically, economically, militarily, whatever, but that to me is hypothetical and I would defer to the political leaders."

So far, the vital waterway and its infrastructure continue to operate without much incident. Officials with the Suez Canal Authority -- whose Web site continues to have problems -- confirmed as much to news media on Friday.

The Authority is a government-controlled entity that represents Egypt's third-largest source of foreign currency. In December 2010 alone, the canal brought in $423 million in revenue, according to the Canal Authority.

Some observers say that it's unlikely that even a new leadership in Egypt would want to turn off that cash-flow spigot. Indeed, Mattis is among them. In London he said, "When you look at the fiscal impact of that on whoever is in a position of authority in Egypt, I just can't imagine the motive to shut that down."

Others can. Certain groups might, after all, have an interest in causing an economic shock by sabotaging the canal or the pipeline.

At least some interruption to canal traffic or pipeline flow appeared likely -- if not inevitable -- at the beginning of the week. That's because the many protests and riots taking place across the country looked sure to prevent at least some workers from getting to their jobs. Some industry observers, for instance, were hearing that fewer tug captains were at the canal.

Any disturbance to the regular operation of the canal or the SuMed would affect oil-tanker companies, because shipping rates would almost certainly shoot higher. Last week, oil tanker stocks like Frontline ( FRO), Overseas Shipholding ( OSG), General Maritime ( GMR) and Nordic American Tanker ( NAT) rocketed higher on just such concerns.

Oil traders had been building canal-disruption risk into the price of crude. Before falling below $90 a barrel on Friday, black gold had spiked on fears that the waterway might close, and on conjecture that political uprisings could spread to other oil-producing Mideast nations with oppressive regimes. Before the Egyptian crisis began, crude was trading about $86 a barrel. Earlier in the week, Brent crude futures shot above $100 a barrel, their highest point since 2008.

With all this in mind, we ask readers of TheStreet to handicap the likelihood of the Suez being closed or disrupted. What do you think? Take the poll below to learn the consensus of TheStreet....

What do you think are the chances of the Suez Canal being closed or disrupted?

A Suez closure is likely.
At least some disruption to operations of the canal and/or the SuMed pipeline is likely.
The canal and pipeline will run smoothly no matter what.

-- Written by Scott Eden in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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