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Wednesday, 21 April 2021

Covert wars over the canal

The crisis over the Ever Given cargo ship that temporarily blocked the Suez Canal has tested the viability of other routes in the shipping sector

Mohamed Hammad , Thursday 8 Apr 2021
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The recent Suez Canal crisis uncovered a hidden facet of the economic interests of other countries, who raced to make gains at the expense of Egypt’s predicament when the canal was blocked by the giant Japanese cargo ship the Ever Given for a week.

This floated out of control and became wedged between the canal’s banks, temporarily blocking the passage of hundreds of ships through the world’s most important waterway and disrupting the supply chains of world trade.

Although the problem was soon overcome, the ship towed away and maritime operations returning to normal in the Suez Canal, the impact of the crisis unveiled attempts by the major powers to find alternative shipping routes for global commerce and end the Suez Canal’s monopoly of nearly 12 per cent of global trade.

Countries eager for their waterways to become viable alternatives to the Suez Canal tried to take advantage of the crisis in order to attract attention to their own shipping routes. The major powers began promoting their own waterways as an alternative to the Suez Canal. Russia, supported by its allies China and Iran, promoted its frozen sea routes and inflated the capabilities of its pipeline transporting natural gas to Europe as a way of attracting the world’s attention.

 Since not much is said about these Russian alternatives during normal times, it is obvious that they are not genuine alternatives to the Suez Canal. They are not viable, and they are too expensive for global shipping.

Nevertheless, Russia was the first in line to try to use the Ever Given’s misfortune for its advantage and to promote its existing Arctic Sea route to transport Asian goods to Europe. However, this route is not as economically viable as the Suez Canal. Arguing the opposite, Russian Deputy Prime Minister Yury Trutnev said in a news conference on Wednesday that the Northern Sea Route (NSR) was a backup option for global trade if shipping was disrupted in the Suez Canal.

“It is a mega-project and aims to create a new international transportation corridor,” Trutnev declared. “Its importance was highlighted when movement through the Suez Canal was interrupted. I think the world feels it is a good idea to have a backup route, and the only option is the NSR.”

The frozen NSR is managed by the state-owned Russian energy giant Rosatom, which uses it to ship natural gas and oil to various European markets. Moscow wants this route to become an official one for gas transporters in order to exploit the impending surge in gas discoveries in the Eastern Mediterranean, the ongoing massive explorations in deep waters, and the fact that many countries are now focusing on re-exporting liquefied gas around the globe.

Russia does not always respond pragmatically to alliances such as the East Mediterranean Gas Forum (EMGF), which is comprised of key countries including Egypt, Jordan, Israel, the Palestinian Authority, Greece, Cyprus, Italy and France. The US has permanent observer status, which strengthens Washington’s official presence in the region.

Seismic surveys in the depths of the Eastern Mediterranean show that the region sits above the largest natural gas basin in the world, with estimated reserves of 122 trillion cubic feet of gas and 1.7 billion barrels of oil. These are estimates that will likely increase. According to estimates published by the US Geological Survey and figures from gas-exploration companies, the Eastern Mediterranean basin is one of the world’s key gas basins and could meet the needs of the European market for up to three decades.

This is why it is important for the US to remain present in this region and to add the topic of energy to its strategic dialogue with Cairo, the headquarters of the EMGF. The latter has now become an important international organisation capable of steering the global gas market.

Russia’s scheming came one year after Moscow announced at the forum of the Chinese Belt and Road Initiative (BRI) that it was researching a way to connect the NSR and China’s Maritime Silk Road, part of the BRI. This would be a chance “to create a competitive route connecting Northeast, East and Southeast Asia with Europe,” it said.

Iran is looking on approvingly at the moves made by Russia and China. Iran’s official news agency IRNA published a tweet by Iranian Ambassador to Moscow Kazem Jalali on Saturday that said that “accelerating the completion of infrastructure and activating the North Sea Route as an alternative to the Suez Canal have become more critical than ever before.”

The Suez Canal is a passageway for ten per cent of the global liquefied gas and oil trade, which is a substantial volume of hydrocarbons on the world market. This became clear when the prices of oil and gas spiked as soon as the news broke that a cargo ship had blocked the canal, with the price of a barrel of oil jumping by five per cent during the crisis, but dropping again after the Ever Given was freed. 

The response of the global markets to this critical event demonstrates the vitality of the Egyptian Canal. Reports also indicated that during the crisis companies began using their oil reserves because of the disrupted supply.

 

NO VIABLE ALTERNATIVES: Meanwhile, Russia carefully plotted to pull the rug out from under the Suez Canal and lure shipping to its northern route across the Arctic. 

It earmarked financial incentives and compensation for any possible damage, and it reassured shipping lines with plans for transporting liquefied natural gas through the northern route. It made plans for developing the Arctic route, confirming Russia’s determination to lure business away from the Suez Canal and intensifying its publicity for this route as a means of transportation in future years and up until 2030.

The financial incentives were designed to solve the problems of commercial carriers refusing to pay the cost of insurance and for renting ice-breakers to travel in front of ships to clear a path for them. Russia has created a state-owned company to regulate the movement of ships, compensate commercial carriers for any disruptions, cover the high cost of insurance for polar voyages and transport cargo between the Kamchatka Peninsula in the far east of Russia and the port of Murmansk in the west over a distance of some 3,000 nautical miles known as the Northern Sea Route.

However, Ahmed Al-Shami, an Egyptian shipping expert, said it was impossible to consider the Russian Arctic route, through which no more than 60 million tons of goods have sailed over the past ten years, as an alternative to the Suez Canal, where ships carry nearly 1.2 billion tons annually.

“The North Pole is not an approved shipping route, and it cannot be relied upon until the ice melts, which is expected by 2050 at the earliest,” Al-Shami said.

The global movement of cargo and containers illustrates the fact that the Russian route cannot compete with the Suez Canal as a maritime passageway, with some 18,500 ships sailing through the latter annually. This is a massive number compared to other man-made waterways around the world. The Russian machinations also face other serious obstacles, as detailed in a study by the University of Turku in Finland. These include the cost of transporting goods via the NSR being 36 per cent higher than through the Suez Canal and the NSR only being open for business between July and October. 

Fouad Thabet, a member of the Port Said Investors Association, was also surprised by the Kremlin’s dabbling.

“If the Russian route was a real competitor, why has Moscow not operated it more profitably over all these years? The Suez Canal has been especially important since its inauguration, with about 40 per cent of global cargo passing through it,” he commented.

Ships passing through the Suez Canal can cut shipping costs by 30 per cent, which makes the waterway a real competitor with the alternative route round the Cape of Good Hope. The canal also shortens cargo shipping between ports by nearly two weeks. 

Russia’s frozen route cannot be considered serious competition to the Suez Canal, but the Russian jostling will doubtless reoccur if another crisis strikes the Egyptian waterway.

*A version of this article appears in print in the 8 April, 2021 edition of Al-Ahram Weekly

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