Suez Canal disruption: What is at stake for Egypt and global economy?

Muhammed Khalid , Thursday 21 Dec 2023

The current disruption of the movement of shipping vessels through the Suez Canal -- due to the conflict in the Bab al-Mandab Strait -- poses a threat to the canal’s revenues and to global trade.

cargo ships sail through the Suez Canal, seen from a helicopter, near Ismailia, Egypt. AP
cargo ships sail through the Suez Canal, seen from a helicopter, near Ismailia, Egypt. AP


Ahram Online discussed the issue with Dr. Ihab El-Gamal, an economic researcher, and Medhat El-Kady, chairman of the Egyptian International Freight Forwarding Association (EIFFA).

“The current crisis is huge and could impact the revenues of the Suez Canal as the crisis persists and more shipping companies resort to using the Cape of Good Hope instead of the Suez Canal,” El-Kady warned.

On Sunday, Chairman of the Suez Canal Authority (SCA), Osama Rabie, stated that 55 ships have switched to the Cape of Good Hope route since 19 November.

Rabie said this number constitutes a small percentage compared to the total number of ships, 2,128, that crossed the Suez Canal during the same period.

The Cape of Good Hope route was a vital trade path between Europe and Asia.


For his part, El-Kady highlighted that the actual number of shipments evading the Suez Canal surpasses the number announced.

He added that the latter number probably refers only to big companies with regular shipment paths. 

The Financial Times, citing data compiled by MariTrace, showed that as of Tuesday evening, only 210 ships were traversing the Red Sea to and from the Suez Canal, compared to 330 last month.

These data bode ill for Egypt, which relies heavily on the revenues of the Suez Canal, as it strives to narrow a $17 billion fiscal gap through 2026.

In the fiscal year 2022/2023, which ended in June, Suez Canal revenue reached $8.8 billion.

El-Kady warned that the Egyptian economy loses millions each day in transit revenues as the crisis remains unresolved.

He noted, however, that the crisis has also had a global impact, citing the Evergreen incident in March 2021, which caused $10 billion in losses for global trade.

According to the US Naval Institute, the Suez Canal carries 12 percent of global trade.

For his part, economic researcher Ihab El-Gamal said, “The Suez Canal serves as a vital conduit for global trade, facilitating efficient shipping routes between Europe and Asia. The decision by certain shipping companies to avoid the canal disrupts established routes, causing delays and increased costs. This disruption reverberates across the global supply chain, affecting the timely movement of goods and creating challenges for businesses relying on just-in-time inventory systems.”

“Rerouting ships away from the Suez Canal leads to longer voyages, heightened fuel consumption, and additional operational expenses. The resultant increased shipping costs are likely to be transferred to consumers, contributing to higher prices for goods. This, in turn, can have implications for inflation rates on a global scale,” El-Gamal added.

The world economy hadn’t yet fully recovered from the ramifications of the COVID-19 pandemic when the war in Ukraine broke out in early 2022.

According to the World Economic Outlook report published in October by the International Monetary Fund (IMF), global economic growth is expected to slow from 3.5 percent in 2022 to 3 percent in 2023 and 2.9 percent in 2024, well below the historical (2000–19) average of 3.8 percent.

In addition, El-Gamal explained that the Suez Canal is a critical route for transporting oil and liquefied natural gas (LNG) and that disruptions in canal traffic can influence global markets by causing delays in delivering these essential resources.

He noted that the potential fluctuation in energy prices and market dynamics thus poses challenges for industries dependent on a stable and predictable energy supply. 

According to Kamco Invest’s Oil Market Monthly Report on Thursday, the attack against ships in the Red Sea and speculation regarding potential interest rate cuts by the Federal Reserve pushed oil prices higher after reaching the lowest level in six months.

Fueled by concerns over the impact of Houthi attacks against ships in the Red Sea, Brent crude oil prices hit $73.2 per barrel (pb) on 12 December -- its lowest level since June -- before rising to more than $80.

The price stood at $79.43 pb on Thursday.

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