Blog : The Egyptian Calculation

by Ed Zwirn on August 14th, 2013

The casualties are reportedly mounting in Cairo, as the Egyptian army moves to clear demonstrators demanding the reinstatement of ousted President Mohammed Morsi.

And with each drop of blood shed or chaotic development in the Middle East, the price of oil is likely to rise, providing energy sector companies continued support by reducing supply even as demand languishes due to the sluggish economy.

Oil prices on both sides of the Atlantic already rose for a third straight session on Tuesday, based on concerns about unrest in Libya and Iraq, bringing Brent crude to a four-month high, and the use of tear gas and live ammunition against the Moslem Brotherhood in Cairo is probably sending visions of sugarplums into the heads of commodity speculators even as I listen to the BBC.

It's not only commodity traders placing the right bets that stand to gain from this unfolding tragedy. While the losers (casualties) are obvious in cases like this, the winners go well beyond oil company investors, extending particularly to a wide range of energy sector penny stocks. And these companies ought to continue to build momentum as prices for a wide range of energy products and commodities spike.

Investments in marginal oil technologies and exploratory projects ought to be on your penny stock radar. In addition, it might be worth taking a look at any small-cap company developing alternative energy products or technologies, many of which only become profitable if the price of oil reaches a certain level, or government incentives give them a boost.

In addition, taking the Egyptian situation as yet another outbreak of instability and uncertainty, the violent outbreak there ought to boost gold prices and Treasury debt, both considered "safe havens" from which investors can take shelter from a frightening world. The flight to Treasuries should keep interest rates low. At the same time, a runup of gold should support commodities across the board.

Because actual trading in gold and other commodities is usually prohibitive except for the highest-tier investors, investing in small-cap companies that prospect and mine for the stuff can sometimes serve as the best way to get in on this action. Ditto for any company that comes up with ways to extract value from marginal commodity holdings.

All this being said, what I'm offering up is an admittedly cold-hearted assessment of the business angle of a very human tragedy. But as sure as I am that diplomats will pontificate over the Egyptian tragedy, I am even more certain that assessments like these, however distasteful, are being discreetly made by people looking at screens all over the world.