The recent news about the blockage of the Suez Canal has gained a lot of popularity on social media. The pictures of the blockage have been widely spread in the online world as memes. But the economic outcomes of the blockage of Suez canal are severe.
Let’s look at the Economic Outcomes of the Suez Canal crisis
What happened at Suez canal
A giant cargo ship which is 400 meter in length has blocked the Suez Canal. The Canal has been blocked by the ship for the past few days. The ship which is operated by the Taiwanese transport company evergreen marine is one of the world’s largest biggest container vessels.
The ship weighs 200,000 tones and has a maximum capacity of 20,000 containers. It is said that the ship had lost control after it entered the narrow passage of the Suez Canal from the Red Sea. The salvage company which is trying to refloat the ship has said that it might take weeks for them to complete the task.
Peter Berdowski who is the CEO of Dutch company Boskalis who is also one of the rescue teams trying to free the ship has said that depending on the situation, they can’t exclude that it might take weeks.
Economic outcome of the Suez Canal crisis
The ship has stopped 12% of the world’s seaborne trade and has already cost losses of billions. Almost 50 percent of the container ships pass through the Canal on a daily basis and around 30% of the global container traffic passes through it.
The current situation is expected to cause a great damage to the global trade. It is expected that the prices of all essential commodities will increase.
Loss due to the Suez Canal crisis
The experts fear that the blockage has led to severe effect on the economy and the global trade. The blockage is costing around 400 million (around INR 2.8k crores) per hour, as ships are asked to take a longer route to reach their destinations.
Experts have said that this is the worst ship blockage ever witnessed. It is said that many cargo ships which have been diverted would take another 5-6 days to reach their destination.
Effect on Crude oil prices
It is said that more than 200 containers carry crude oils through the Canal on a daily basis. Experts have also told that the major hit would be for the small tankers and the crude oil exports from Europe to Asia.
The director of Asia oil at FGE Sri Paravaikkarasu has said that around 20% of Asia’s Naphtha which is crude oil is supplied through the Suez Canal. He said that re-routing of the ships would add more amount of fuel consumption for the ships that is around 800 tones and increase its operating expenses.
The shortage in the availability of the crude oil will lead to a jump in the crude oil prices. It is said that the crude oil prices have already increased due to the fear of the crude oil Suez Canal blockage in the past few days.
Data from Refinitiv has suggested that around 30 oil tankers have been waiting at both the sides of the Suez Canal. David Fyfe who is a chief economist at Argus Media which is a market research firm said that around 5-10 percent of the global shipments passing through the Suez Canal are crude oil, refined oil, and liquefied natural gas shipments.
Other consequences due to the Suez Canal crisis
Lars Jensen who is an independent container shipping expert based in Denmark has said that basically anything you see in the stores would be in shortage because of the blockage in the Suez Canal.
This includes everything from toilet papers, coffee, furniture, clothes, shoes, exercise equipment to car parts, carpets, and electronics. The blockage has also delayed e-commerce product deliveries which even include food.
Ian woods who is a marine cargo lawyer and partner at the London-based firm Clyde and Co. has said that, there are commodities worth millions of dollars on other ships waiting for the blockage to be cleared.
If the blockage is not cleared quickly then they would consider taking longer routes which will increase the operational charges and these extra charges will be carried down to the consumers.
It is said that eventually the consumers will have to pay the price and this blockage would have a deep impact on the end consumers. The exact amount and the exact effect of the blockage are not yet analyzed but the more it delays the consequences will increase.
Each day of delay will add more billions of dollars of losses towards the global trade and the economy.
What country owns the Suez Canal?
The Suez Canal is operated and owned by Egypt.
What country built the Suez Canal?
In 1854, Ferdinand de Lesseps, the former French consul to Cairo, secured an agreement with the Ottoman governor of Egypt to build a canal 100 miles across the Suez.
Why did Great Britain want to control the Suez Canal?
Great Britain wanted to control the Suez canal, because it allowed them quicker access to its colonies in Asia and Africa.
When did Britain buy the Suez Canal?
In 1875 Britain bought Suez Canal from the Egyptians in £4million worth of shares.
However, Egypt’s Suez Canal Authority is looking forward to cooperating with the United States in efforts to refloat the container ship which has blocked the Suez Canal for the past few days. According to Arab News, the Canal revenue for Egypt was $5.6 billion in 2020.