Barely two years ago, Egyptians threw off the yoke of dictatorship and embarked on a grand democratic experiment. Last year, the country’s first truly free presidential election was held, returning Mohammed Morsi of the Muslim Brotherhood’s Freedom and Justice Party (FJP) as the new president.

But ever since Morsi was sworn into office in June 2012, popular discontent has been steadily escalating, culminating in massive street demonstrations across the country this past weekend. As a result of the growing unrest, the Egyptian military set a deadline that expired today for the Muslim Brotherhood to end the protests or it would intervene.

While Morsi and his party had proposed a roadmap to reestablishing order in the country, the recently formed Tamarod movement apparently rejected the deal and protests continued.

Breaking news this evening indicates that the military has conducted a coup and is once again taking the reins of government. Military authorities reportedly have a plan in place to suspend the country’s constitution, dissolve parliament and create an interim ruling council headed by the country’s chief justice. Media reports also say that travel bans have been placed on Morsi and other prominent Brotherhood officials.

What does all this mean for investors?

For one thing, the political situation in Egypt is exerting a direct impact on equity markets in the US. Despite getting off to a strong start on Tuesday, July 2, the major US indexes ultimately ended the day with small losses, with investors uncheered by good news on home prices and manufacturing.

Today, US stock averages reversed these earlier losses to finish modestly higher as increasing optimism over the job market counteracted worry over Egypt.

Nonetheless, oil prices have spiked this week on bad news emanating from Egypt, trading above $100 a barrel and at the highest level in over a year. Although Egypt is not an oil producer, the country’s Suez Canal is a major choke point for global oil supplies, with nearly 3 million barrels a day transiting the area.

Lying just west of the Sinai Peninsula, the canal is in an area that the Egyptian military has been having difficulty controlling even without the distraction of actually running the country. If the Suez Canal were to become impassable due to Egypt’s political situation, oil prices would likely continuing climbing higher.

If oil prices were to spike about $105 and remain there, the resultant increase in gasoline prices would certainly drag down consumer spending. That’s particularly unwelcome news, with interest rates rising thanks to recent Federal Reserve speculation that it might begin backing off its monetary support to the US economy later this year. The double-whammy of rising interest rates and higher energy prices would certainly be a blow to the US economy.

But for now, there’s no reason to be too concerned. If oil supplies were to suffer a sustained disruption due to the situation in Egypt, the US government and its allies could easily release crude from strategic reserves to offset the effect.

Paradoxically, Market Vectors Egypt Index ETF (NYSE: EGPT) has been rising even as the political situation has been deteriorating, up more than 4.5 percent on the week as of this writing.

Foreigners might be bargain hunting—most reports say that business is continuing as usual in areas not directly impacted by protests—but we suspect that Egyptian equities are moving higher thanks to local buying.

Morsi hasn’t proven himself to be particularly pro-business and seems more focused on regional political challenges than reforming Egypt’s struggling economy, so it’s likely that local buyers see his potential exit as a positive development.

If the military is making a decisive move to oust Morsi and his party, the certainty of having the deed done could ultimately boost the Egyptian equity market. There’s also the possibility that a peaceful resolution could still be achieved.

With a population of only 82.5 million people and a stock market with a total capitalization of only $48.7 billion, Egypt is still managing to trigger gyrations in the vast global energy and equity markets. It’s instructive for investors to be reminded that unrest in a small country can have big ramifications.

Portfolio Roundup

As part of Rio Tinto’s (NYSE: RIO) effort to cut costs and refocus on its core businesses, the company conducted a strategic review of its diamond operation and reportedly considered either selling it outright or spinning it off into a free standing enterprise. However, given the recent sluggishness of the natural resources sector, Rio announced that it would retain the business.

Rio’s diamond business generated a $43 million loss last year, so the likely explanation is that the company wasn’t able to find a buyer at an acceptable price. It’s also possible that since the diamond business is dominated by a handful of large players, any company large enough to get a deal done at an attractive price could have created regulatory headaches.

Despite the company’s failure to get a deal done, diamonds are a relatively small part of its overall operations. Rio Tinto remains a buy under 60.

Freeport McMoRan Copper & Gold (NYSE: FCX) has received approval to resume operations at its Grasberg mine in Indonesia following two accidents in mid-May. Operations had been closed for more than a month, pending a government investigation into the accidents that resulted in 28 deaths.

Production volumes at the Grasberg mine had been falling and ore quality declining, but the mine remains Freeport’s largest and most important, producing 695 million pounds of copper last year. In its latest production report, Freeport said that the six-week closure had reduced the mine’s output by about 36,000 tons, or about 7 percent of what the company estimated would be extracted there this year.

Given the impact of the closure on Freeport McMoRan Copper & Gold’s production for the year, we’re cutting our buy target on the stock to 31.