The Suez canal, which links the Nile Delta to the Gulf of Suez, is a 150 year old, 120 mile long artery for world trade that trims many thousands of miles off the journey from the far East to Europe.
Constructed in 1869, the canal has been subject to service interruptions by the Egyptian government several times, once for a period of eight years triggered by the Six Days War in 1967.
Given the current chaos in Egypt and the seemingly inevitable change of government it’s time to take a look at this important trade route and the implications its closure would have.
Fatih Birol at IEA says a canal closure is HIGHLY unlikely. Found this a few days after this diary was published, updated for posterity's sake.
The Canal links the Mediterranean Sea with the Red Sea, and from there to the Indian Ocean. 673’ wide at its narrowest and 79’ deep at its shallowest. The term Suezmax is used to characterize the largest ships that can fit this canal - sources vary, but 240,000 tons is the upper limit. The smaller Panama Canal is limited to vessels of 65,000 tons displacement. Use of the Suez Canal rather than the Cape Hope route saves 6,000 miles of travel.
Suez Canal seen from space
The canal bears 7.5% of global sea trade carried on about 21,000 vessels annually. Average transit charges are $251,000 and the canal produces over $5.3 billion for the Egyptians, about 1% of their total GDP, but this is 11% of the government’s $47B budget. This recent report indicates 40 to 50 ships transiting daily and is portrayed as ‘business as usual’.
The canal is the connection route for the United States Navy between Atlantic home ports and the 5th Fleet HQ in Bahrain. This U.S. Navy report from June of 2010 describes the transit of the U.S.S. Harry Truman and its attendant escort vessels, which make up a Carrier Strike Group. Loss of this route would add an additional eleven days travel time from home ports to Persian Gulf duty.
Unnamed U.S. carrier in the Suez Canal
The canal was closed by sinking forty vessels during the Suez Crisis in 1956 and again for a period of eight years as a result of the Six Days War in 1967. The U.S. Navy was involved in clearing the canal of sunken ships and mines after this eight year stoppage in Operation Nimbus Moon and Nimbus Star.
16% of the canal’s traffic are oil or refined products, with 1.0 mbbl of northbound traffic, and 0.8 mbbl of southbound traffic. Production occurs in the Persian Gulf and refining activities are in Europe, which drives the bi-directional transfer of this fungible commodity. A service disruption would likely hurt consumers of southbound finished products much more than Europe according to this lengthy assessment of Egypt’s overall condition.
Driving 1/12th of global trade out of this route would simply eliminate a portion of the traffic due to either timeliness or transport cost, and prices on goods still making the trip would reflect the increased expense.
Seen in the broader context, the underlying driver behind the government change in Tunisia, the troubles in Algeria and Jordan, and collapse of the Mubarak regime are in large part rising food costs. Wheat costs are a key component of this and weather conditions in Australia will further aggravate this situation.
The most rational long term action on Egypt’s part would be to keep the canal open at all costs, using the revenue to provide the food and fuel subsidies necessary to stabilize their society. During the transition it is not unreasonable to imagine conditions where some faction wrestling for control of the government might have both the willingness and the means to disrupt shipping traffic.
I get daily briefs from GlobalSecurity.org - here is the stuff today, all Egypt, all the time.
Mullen: Egypt’s Military Promises to be Stabilizing Influence
Egyptian Military Refuses to Use Force Against Protesters
Muslim Brotherhood: Radical Islamists Or Reluctant Democrats?