Is there a looming threat to the Suez Canal?

img
A Way In To A Walled-Off Country - Israel-Sinai Pipeline Wikipedia - Courtesy: Political Activism Blogs

On Friday, February 12, the Suez Canal recorded the fifth highest daily load in the history of the canal, and the highest daily revenue since the outbreak of the new Corona virus, Covid-19.

On that day, 72 ships crossed the canal from both directions without waiting, with a total net tonnage of 5.3 million tons and revenue of $24.7 million.

According to the head of the Suez Canal Authority, Lieutenant General Osama Rabie, these record figures give a clear indication of the strategic importance of the canal. It remains the shortest and fastest shipping route, and the first and safest choice for global trade moving east to west.

The Suez Canal is an artificial sea-level waterway running north to south across the Isthmus of Suez in Egypt and connecting the Mediterranean Sea and the Red Sea. The canal is 193 kilometers long and separates the African continent from Asia. It provides the shortest maritime route between Europe and countries located around the Indian and western Pacific oceans.

This strategic location makes it one of the world's most heavily used shipping lanes. Since its construction was completed and it began operating in 1869, it has remained one of the most important waterways in the world.

In 2019, when the canal achieved its second highest tonnage ever and its third highest revenue, 18,850 vessels crossed the canal and tonnage reached 1.2 billion tons. That year it earned Egypt net revenues of $5.7 billion. In 2020, because of Covid-19, the number of vessels transiting declined slightly, and revenues were $5.6 billion.

The Suez Canal however has jumped into the spotlight of local, regional, and international media after the announcement that it was only a matter of time until the Israeli Eilat-Ashkelon pipeline would be restarted.

The news raises many questions: What are the justifications for raising this issue at the current time? How big of an effect will restarting the pipeline have on the Suez Canal? How accurate is the information circulated in the media that the Suez Canal will lose its luster and competitiveness as a result of the pipeline? Some reports suggest the canal could lose 12-16 percent of the total trade passing through it.

The Eilat-Ashkelon oil pipeline was established in the 1960s for the purpose of transporting Iranian oil (during the Shah's era) from the Red Sea to the Mediterranean via Israel.

In 2017, an Israeli parliamentary committee decided to continue to "work secretly" for a new Israeli company established to replace the company launched earlier by Israel and Iran. Last October, the Israeli state-run EAPC and the UAE-based Midred Land Bridge Company signed a memorandum of understanding for cooperation in the field of transporting crude oil via the Eilat-Ashkelon line.

The Eilat-Ashkelon pipeline is 158 miles long and runs from the Red Sea to the Mediterranean.  The companies that own it plan to provide a cheaper alternative to transporting crude oil and gas not only to the region, but to sea ports that can link up to the rest of the world.

The deal to restart the pipeline is worth $700-800 million according to several observers. It is one of the most important forms of cooperation that emerged after the normalization of relations between the United Arab Emirates and Israel.

A memorandum of understanding for the deal was signed last October in Abu Dhabi in the presence of former US Secretary of Treasury Stephen Mnuchin, and Emirati and American officials. It is expected that the actual operation of the line will begin this year.

The Suez Canal Authority issued a statement in early February, denying the allegations that were circulated in some media regarding the impact of the Eilat-Ashkelon pipeline project on the competitiveness of the Suez Canal.

The statement included the following important points:

- Talk about the impact of the Eilat-Ashkelon pipeline on the oil trade traffic passing through the canal, assuming the pipeline is actually restarted, was circulated incorrectly and partially.

- It is expected that the percentage of that impact will not exceed (12% -16%) of the volume of crude oil trade heading northward and not of the total trade flow crossing the canal.

- Reports and analytical studies prepared by the economic unit of the canal confirm the absence of an actual impact from the operation of the Eilat-Ashkelon pipeline on the navigation traffic passing through the Suez Canal.

- Statistics on oil trade across the canal show that there is no reason to fear the competitiveness of the Eilat-Ashkelon pipeline, as the oil trade in the UAE represents about 0.7% of the total oil trade traffic passing through the canal. The proportion of Saudi Arabia’s oil trade passing through the Suez Canal represents about 4.9% of the canal's oil traffic. Kuwait’s trade meanwhile constitutes about 1.4% of the total oil trade passing through the canal.

- The percentage of trade in petroleum products crossing the Suez Canal increased to 14.2% (products that are difficult to transport through pipelines), while the share of crude oil decreased to only about 8.8% of the volume of trade passing through the Canal due to the increase in investments in the petrochemical sector and in global oil refining activity.

- Expectations of an increase in transportation costs and times via the Eilat-Ashkelon line instead of the Suez Canal.

- The flexible marketing policies adopted by the authority during the past year succeeded in attracting 114 crude oil tankers on the Americas-Asia route, with a total revenue of $ 15 million.

- The Suez Canal Authority expects an increase in the costs and time of transportation via the Eilat-Ashkelon line instead of the Suez Canal, especially as this trade is mostly directed to northwest Europe and will require shipping on tankers in the Mediterranean, in addition to an increase in the time used for unloading and shipping. Moreover, the importance of operating the pipeline for export to Europe is likely to decline in light of Europe’s policies to reduce dependence on fossil fuels that cause global warming and its long-term trend towards clean energy and natural gas.

Dr. Ahmed Kandil, head of the Energy Studies Program at the Al-Ahram Center for Political and Strategic Studies, stated that “the economic viability of the Eilat-Ashkelon line is not great, in addition to the fact that political tensions and geopolitical dimensions in the region will make it risky to think about financing it from international institutions. European plans are looking to reduce dependence on oil, and have ambitious plans to confront climate change and reduce oil or gas-based fuels."

Kandil said that there is an important criterion related to the region that regards the possibility of a military confrontation between Turkey and Greece. This will be reflected in destabilization in the region, Kandil said. He pointed out that “the Eilat-Ashkelon project had received political support from the administration of former President Donald Trump as part of the normalization agreements. The change of administration and arrival of President Joe Biden is an emerging factor and should be taken into account when thinking about political support and the feasibility of continuing plans to revive the project.

At the same time, the Media Center of the Egyptian Council of Ministers responded to reports about the establishment of overland commercial roads competing with the Suez Canal, which affects its foreign currency revenues.

The council emphasized that the revenues of the Suez Canal come from many different sources, with many different types of ships passing through it. The revenues from container ships represent about 50% of revenues;  dry bulk vessels represents about 17%; liquefied natural gas revenues are about 5%; car carriers about 4%; petroleum derivatives and all kinds of chemicals are about 12%; while crude oil revenues represent 6.4%, and 5.6% of revenues are from other types of ships.

Kamal Gaballa, Former Managing Editor of Al-Ahram

  • Mediterranean Sea and the Red Sea
  • Suez Canal
  • Egypt
  • Covid-19
  • Outbreak
  • Coronavirus

Leave a Comment

Related News