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Insights into Editorial: The Suez Canal crisis, and its impact on global trade

suez

 

Context:

A huge container ship has run aground and is blocking traffic in the Suez Canal, one of the world’s busiest waterways and the shortest shipping route between Europe and Asia.

A container ship called the ‘Ever Given’ was freed from the Suez Canal on March 29, 2021, a week after it ran aground and blocked other vessels from transiting one of the world’s most important waterways.

A human-made waterway, the Suez Canal is one of the world’s most heavily used shipping lanes, carrying over 12 per cent of world trade by volume.

 

How did blockade happened:

The 400 metre-long Ever Given container ship ran aground early on March 23 as it travelled north from the Red Sea towards the Mediterranean, twisting diagonally across the width of the canal.

The canal is in Egypt and it connects Port Said on the Mediterranean Sea to the Indian Ocean via the Egyptian city of Suez on the Red Sea.

The canal enables more direct shipping between Europe and Asia, eliminating the need to circumnavigate Africa and cutting voyage times by days or weeks.

 

Brief History of Suez Canal:

In 1858, the Universal Suez Ship Canal Company was tasked to construct and operate the canal for 99 years, after which rights would be handed to the Egyptian government.

Despite facing multiple problems ranging from financial difficulties and attempts by the British and Turks to halt construction, the canal was opened for international navigation in 1869.

The French and British held most of the shares in the canal company. The British used their position to sustain their maritime and colonial interests by maintaining a defensive force along the Suez Canal Zone as part of a 1936 treaty.

In 1954, facing pressure from Egyptian nationalists, the two countries signed a seven-year treaty that led to the withdrawal of British troops.

 

Why is Suez Canal important?

  1. The canal is in Egypt, connecting Port Said on the Mediterranean Sea to the Indian Ocean via the Egyptian city of Suez on the Red Sea. Therefore, The Suez Canal is an artificial sea-level waterway running north to south across the Isthmus of Suez in Egypt, to connect the Mediterranean Sea and the Red Sea.
  2. The passage enables more direct shipping between Europe and Asia, eliminating the need to circumnavigate Africa and cutting voyage times by days or weeks.
  3. The 193-km waterway Suez Canal which connects Asia and Europe is so important to world trade that world powers have fought over it since it was completed in 1869.
  4. About 12% of world trade passes through the canal each year, everything from crude oil to grains to instant coffee.
  5. Without Suez, a super tanker carrying Mideast crude oil to Europe would have to travel an extra 6,000 miles around Africa’s Cape of Good Hope, adding some $300,000 in fuel costs. Because it has no locks, it can even handle aircraft carriers.
  6. The canal’s location makes it a key link for shipping crude oil and other hydrocarbons from countries such as Saudi Arabia to Europe and North America.
  7. Among other goods, 54.1 million tons of cereal passed through the canal, 53.5 million tons of ores and metals, and 35.4 million tons of coal and coke in 2019.

 

How tides, tugboats helped free the big ship:

  1. The crisis was now not just the talk of Egypt’s 100 million residents, but much of the world.
  2. And pressure was mounting, with the maritime traffic jam holding up at least $9 billion in trade a day and forcing a growing backlog of vessels carrying oil, consumer goods and livestock.
  3. And by the end of the week the rescue effort had become an international affair. It was a huge team effort with canal officials coordinating the whole thing.
  4. For all the human toil and modern equipment, the rescue efforts ultimately relied upon a power beyond their control: the tides.
  5. When it comes right down to it, we’re still relying on the same seamanship. It was the moon and a moon-tide that helped float the vessel.

 

Which country controls the canal now?

  1. The British powers that controlled the canal through the first two world wars withdrew forces there in 1956 after years of negotiations with Egypt, effectively relinquishing authority to the Egyptian government led by President Gamal Abdel Nasser.
  2. The canal is a major source of income for Egypt’s economy, with the African country earning USD 5.61 billion in revenues from it last year.
  3. In 2015, Egypt announced plans to further expand the Suez Canal, aiming to reduce waiting times and double the number of ships that can use the canal daily by 2023.

 

Conclusion:

This Suez Canal route is used for Indian exports/imports worth USD 200 billion to/from North America, South America and Europe.

It includes petroleum goods, organic chemicals, iron and steel, automobile, machinery, textiles and carpets, handicrafts including furniture, leather goods, etc.

For India, though, the main hit could be seen on the import and export of ethane with the US, and the imports of crude from Latin America, the uptake of which was recently increased. The longer the closure, the more disruptive the impact is likely to be.

The Indian government has chalked out a four-point plan to deal with the situation arising from the blockage of the Suez Canal including advising ships to re-route via Cape of Good Hope.