The sharemarket is ripe for a correction with oil going above $US100 a barrel in both Europe and Asia and the turmoil in Egypt refusing to go away.

Whether what’s happening in the Middle East is a food revolution or an Islamic uprising that will result in radical Muslim governments is beside the point for the moment. Stable, secular, corrupt, authoritarian regimes are under enormous pressure and some may fall, and the result is unpredictable.

There is no doubt that soaring prices over the past six months have been a trigger for the unrest. The cereals index has risen 39 per cent and the UN’s Food and Agriculture Organisation has said its global food index has passed its all time high.

Countries throughout the Middle East and Asia have been scrambling to stockpile wheat, but supplies are low and bread prices in these countries are skyrocketing.

The cause of the big rise in food prices is well known but politicians have been confusing the issues by accusing speculators of being behind it.

It was the Russian drought, which severely reduced the summer harvest, compounded by rains in Australia, Canada and Argentina, as well as acreage downgrades in the US. This came on top of the deeper causes: surging population in the third world and diet shifts in China and India as average incomes rise.

And now an oil spike is following the food spike, and this time it probably is mainly speculators.

A sudden increase in the prices of both food and energy is very bad news for both the world economy and world peace.

For the moment all eyes are on Egypt’s President Hosni Mubarek, and whether he can cling to power long enough to outlast the protestors in the streets of Cairo, Alexandria and Suez. It could go either way.

Whatever happens, American influence in the region is waning and ironically the beginnings of that decline can perhaps be traced to President Obama’s speech in Cairo 18 months ago – his first foreign policy speech, in which he actually predicted what would happen when he said: “All people yearn for certain things: the ability to speak your mind and have a say in how you are governed.”

He certainly would not have expected the streets of a dozen Middle East cities to be filled with people yearning for just that, so soon after the US mid-term elections.

I am no foreign policy expert, but it seems the US is in a very difficult position with Egypt and the other Arab dictatorships. It “yearns” for stability, but can hardly deny popular revolutions. So far it’s gone for the worst of all worlds: wringing its hands on the sidelines and potentially losing both the people and the stability.

*This article was originally published on Business Spectator

Peter Fray

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Peter Fray
Editor-in-chief of Crikey