If President Hosni Mubarak clings to power, investors will reprice Egyptian and regional assets to brace for weeks, months or possibly years of heightened political risk.
If he goes, global markets could still react with alarm, fearing a rising tide of unrest across the Middle East and possibly other authoritarian economies that could threaten energy supplies and potentially global economic recovery.
Mubarak sacked his government after four days of street protest, but made it clear he had no intention of giving in to demands from the street that he stand down. Tanks and troops deployed on the streets face rising numbers of demonstrators.
Egypt is entering uncharted waters, analysts say, and is far from clear how much force soldiers and officers will be willing to use.
Whatever happens, events in Egypt — coming close on the heels of the overthrow of Tunisia's government by protests that escalated to regime change in less than a month -- have dented previous assumptions of stability.
"Either way, Egyptian risk will be priced up," said one investment strategist on condition of anonymity." The question now is whether we hit bottom quickly or slowly."
Egypt's stock market lost 16 percent in two days last week. Along with Egypt's banks, it should have reopened on Sunday but officials said both would remain closed. The Egyptian pound has fallen to six-year lows.
But the investment ripples looked to be going well beyond the Middle East. Wall Street's S&P 500 index recorded its worst one-day fall in six months on Friday on the unrest.
Egypt has long been seen as a key U.S. ally in the region, and sits astride the Suez Canal through which much of Europe's crude oil and imported goods pass.
SAUDI, OTHER WORRIES
Particularly if Mubarak does ultimately go, investors will also be querying the survivability of other regional governments including potentially Saudi Arabia.
The world's biggest oil producer also has an ageing head of state and social divisions, but it also has a colossal wealth from its oil revenue that gives its ruling elite much more flexibility when it comes to effectively buying public support.
"This might affect perceptions of Saudi risk," said John Drake, senior risk consultant at London consultancy AKE.
"Everyone has always said that Saudi will face a crisis eventually — most likely when they run out of oil, which will not be for a long time. But I'd be much more worried about countries with a bigger wealth gap — Algeria, possibly Bahrain, Lebanon."
Yemen — another key U.S. ally — has also seen rising protests. Certainly, markets would react badly if it appeared other Middle Eastern countries were also being pushed to the brink of revolution.
So far, while Egypt's Suez town has seen some of the worst violence so far, there is no reported impact on shipping. Most of the international shipping passing through the canal has already run the gauntlet of Somali pirates further south in the Gulf of Aden and Indian Ocean, so onshore violence in Egypt may have little effect on already sky-high insurance premiums.
RISING COMMODITY PRICES
Nevertheless, any disruption would send markets reeling. Fuel and food prices are already edging higher, the latter boosted in part by other governments increasing food purchases in the hope of staving off further unrest.
That could boost inflation around the world. Even in Europe heightened cost of living is seen further stoking what are seen as rising protests against austerity and spending cuts.
The broader impact on the Egyptian economy is almost impossible to predict, but will depend on how long unrest lasts. Tourism is almost certain to take a major hit, with February generally seen as one of the most crucial months for the industry.
If Mubarak is successful in what could turn into a brutal crackdown, foreign firms and investors could still be deterred. Aged 82, Mubarak has always avoided naming a successor and another political crisis might be seen all but inevitable.
As Thailand has shown several times in the recent years, concerns over succession — in the Thai case over the aged king — coupled with political and social divisions can prove a potent recipe for unrest.
There could also be reputational risks from being seen as too close to Mubarak's government. White House press secretary Robert Gibbs was asked pointedly whether the United States might put pressure on British mobile phone operator Vodafone after it acquiesced to Cairo's demands to shut down services. All that means that in the short term, investors, firms and others will be focused firmly on what happens on Cairo streets.
"It really all comes down to the army," said AKE's Drake. "If the army can find someone who the public can accept as a potential successor, things will calm down."
© 2023 Thomson/Reuters. All rights reserved.