Suez Canal in the Crosshairs

The global trading and international policy communities need to pause and reflect on the consequences of a successful armed attack on the Suez Canal, a critical artery of world trade. The probability is low, but the impact very high.

The canal, of course, provides a vital and efficient maritime shortcut between the Pacific and the Atlantic oceans and has become a foundation of the world economy.  

It has been closed by wars in the past, but the impact of closure now would be much greater because of the growth of global trade and maritime supply chains over the last few decades.    

The role of the Suez Canal in an increasingly globalized economy is impressive. Some 17,000 ships passed through the canal in 2012, and its annual tonnage, especially increasingly large container ships, has nearly doubled over the last dozen years despite the Great Recession. It provides a key energy link between the Persian Gulf and Western Europe. 

Egyptian security and stability has and does matter uniquely to the world’s developed democracies and other trading powers because of its value to world trade. 

Recent events in the region are truly troubling: unprecedented civil strife in Egypt, a radicalized and aggrieved Muslim Brotherhood, successful jihadist militant attacks and Bedouin insurrections in the Sinai, the ghetto of Gaza, links to the instability of Syria, a reported unsuccessful terrorist attack on a Cosco container ship and no sign of a political off-ramp.   

There is a question as to whether Egypt’s tradition of relative internal political moderation will escape the infection of guerilla tactics from conflicted areas such as Iraq, Afghanistan, Syria, Libya and Yemen. Whatever the Egyptian Army does or says, the risk of an asymmetrical assault by non-state actors on shipping and infrastructure in the canal has heightened.

The canal earns Egypt approximately $5 billion a year in hard currency fees, with secondary economic benefits well beyond that. It’s vital to the Egyptian government and economy and no rational Egyptian would cut it for political reasons. 

But the canal as a target may become too attractive and tactically vulnerable for a splinter militant faction as retaliation toward Egypt’s military regime, or a September 11-like blow to the West.

The effect of a Suez Canal blockage on the vast and intricate global supply chain and shipping patterns that have emerged over the last several decades would be traumatic, especially on markets and economic confidence.   

The impact would be greatest on commodity and energy trade between Western Europe and the Persian Gulf states, South Asia and the manufacturing superpowers of East Asia. North America would be affected to a lesser degree, but would suffer macroeconomic aftershocks from the European Union and Asia.

Western naval power projection would become significantly less agile and more costly. Oil and gas markets would be influenced heavily. 

Closure would precipitate a scramble for transportation alternatives:  sailing around the Cape of Good Hope, over the Russian Northern Sea Route (now ready for increased traffic), through the Panama Canal, and trans-Siberian (and even trans-Canada), ship-rail-ship routes from East Asia to Europe, new pipelines, and more air cargo. Alternatives are available, but longer, more expensive, more polluting, slower or capacity-constrained. 

The longer a blockage would last, the greater the macroeconomic shock of supply chain interruptions on and longer-term reductions in the gains from trade would have on exporters, importers, companies, consumers and indirect effects on investors in vulnerable national economies.    

It would be prudent for international importers and exporters to ask themselves now how they plan to adjust their production and supply chains if militants disable the Suez Canal. Marine and rail transportation companies worldwide should look for untapped sources of resilience and redundancy to minimize global disruption of trade and associated financial and environmental costs. 

Finally, the world’s leading maritime powers should consider options for preserving the viability and neutrality of the Suez Canal in close cooperation with the Egyptian authorities. 

John Higginbotham is a senior fellow at Carleton University and the Center for International Governance Innovation. He is a former senior diplomat at Canadian embassies in Washington, Hong Kong and Beijing and an assistant deputy minister at Foreign Affairs, Trade and Development Canada and at Transport Canada. Contact him at john.higginbotham@carleton.ca.

 

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