Petrocapita UpdateOctober 1, 2012

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Let me propose a thought experiment. Are we in a global environment where food prices can drive energy prices rather than the more typical relationship where energy prices tend to drive food prices? Key oil producing and/or middle eastern countries spend disproportionate amounts of household income on food.

SHARE OF HOUSEHOLD SPENDING ON FOOD %

United States 6.6United Kingdom 9.7Canada 9.8Germany 11.0Bahrain 14.3Kuwait 14.5United Arab Emirates 14.5Japan 14.8Turkey 21.4China 22.3Mexico 22.7Iran 23.4Saudi Arabia 23.7India 27.7Venezuela 28.9Russia 29.0Egypt 38.0Nigeria 39.8Jordan 40.6Georgia 41.3Pakistan 41.9Belarus 42.1Algeria 43.7Azerbaijan 45.3

Source: FAO, USDA, CIA Factbook - 2010

Petrocapita Update

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Petrocapita Update (continued)

Consequently, residents in such places are heavily exposed to price increases in basic food-stuffs. Does this matter? More specifically, does this create a higher risk of civil unrest? Apparently the answer is yes and it happens predictictably once prices move beyond a certain level. According to research by Marco Lagi, Karla Z. Bertrand and Yaneer Bar-Yam (The Food Crises and Political Instability in North Africa and the Middle East, New England Complex

Systems Institute) - “the timing of violent protests in North Africa and the Middle East in 2011 as well as earlier riots in 2008 coincides with large peaks in global food prices. We identify a specific food price threshold above which protests become likely. These observations are consistent with a hypothesis that high global food prices are a precipitating condition for social unrest. ...More specifically, food riots occur above a threshold of the FAO price index of 210.”

260

240

220

200

180

160

140

120

FOOD PRICE INDEX

2004 2006 2008 2010 2012

240

220

200

180

160

140

120

100

801990 1995 2000 2005 2010

Brundi (1)

Haiti (5), Egypt (3),Cote d’Ivoire (1)

Sudan (3)Cameroon (40)

Yemen (12)

Mozambique (6)

Mauritania (2)

India (4)

Somalia (5)

Algeria (4), Saudia Arabia (1)

India (1),Sudan (1)

Mozambique (13)

Mauritania (1), Sudan (1), Yemen (300+)Somalia (5)Tunisia (1)

Syria (900+)Uganda (5)

Egypt (800+)Libya (10000+)

Tunisia (300+)

Oman (2), Morocco (5)Iraq (29), Bahrain (31)

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Petrocapita Update (continued)

260

210

170

130

90

5090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

FAO FOOD PRICE INDEX

2002-2004=100

Nominal

Real*

* The real price index is the nominal price index deflated by the World Bank Manufacturers Unit Value Index (MUV)

Where is the FAO index now? 213. It would appear that unrest in the middle east is set to continue...... and if it continues and/or grows, does this mean higher oil prices are ahead as investors are forced

to price in even higher risk premiums and importing nations deal with potential and perhaps real supply dislocations?

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