The Suez Canal: A lifeline to Egypt and crucial gateway for global trade

For 150 years, the narrow passageway has been at the heart of the world’s maritime prosperity, but it could soon face competition

Nash Weerasekera

The Suez Canal: A lifeline to Egypt and crucial gateway for global trade

Khaled Kassar

last update on 18 Mar 2023

The Suez Canal (SC) has an unmatched position in the hearts of Egyptians and Arabs given its unique geographic location. It is a majestic creation that can trace its roots back to early civilisation.

It was along the Suez Canal’s path, now thriving with commerce, that mankind first conceived of digging a navigable waterway, with work starting hundreds of years before Christ, making it among the first canals in human history.

The modern-day East-West link via the shortest and fastest crossing between the Mediterranean (Port Said) and the Red Sea (Suez) makes the Suez Canal the world’s most preferred maritime route for ships on that journey.

The statistics speak for themselves, clearly demonstrating its status as a key link in global logistics and worldwide supply chains of supply.

Approximately 12% of international trade, 10% of international oil and gas shipments, and 22% of container trade passes through the Suez Canal. This gives it paramount importance across the full gamut of the most important factors in world relations – geopolitics, economics, politics, military matters and international alliances.

Egypt knows well that its own national security is tied to the SC, which is, in turn, linked to the security of the Red Sea and the states on both of its coasts, not to mention the African countries bordering the Bab al-Mandab Strait, including Somalia, Djibouti, and Eritrea.

Humanity’s hopes and ambitions for a link between the Red Sea and the Mediterranean Sea run deep, reaching back to 2,000 B.C., as proven by monuments and ancient manuscripts from the era of Senusret III, the pharaoh of Egypt.

The underlying idea for this shipping shortcut never went away until it came to pass in colonial times, dominated by the French, and then the British, who kept tight guard of contracts to operate the Suez Canal after it was finally dug into Egyptian soil.

Watershed moment

Then, in 1956, ownership of the Suez Canal was nationalised by President Jamal Abdel Naser, resulting in the Tripartite Aggression by France, Britain, and Israel to take SC away, once again, from Egypt.

However, the aggression ended with Tripartite party retreating under US and international pressure, along with public resistance.

The 193km-long SC has always boosted Egypt’s political and economic position on the world map. Last November, the Suez Canal celebrated its 153rd anniversary of its inauguration by Khedive Ismael in 1869, although it was only 163km long back then.

Getty Images — The Egyptian President Gamal Abdel NASSER announcing the nationalization of the Suez Canal to a crowd of 250,000 people during a celebration of the 4th anniversary of the July 26, 1956 revolution.

It became, and remains, the shortest, fastest, and most secure maritime route between Europe and Asia, saving voyages between the Far East and Europe between eight and 11 days compared to the route via South Africa’s Cape of Good Hope.

The global greatness of the Suez Canal dates back to its decades-long construction. A spectacle of human achievement, it involved “about one million Egyptian labourers of whom nearly 100,000 fell as martyrs while digging”, according to an official account by Egypt’s education ministry.

The deaths were a result of famine, thirst and forced and hard labour. The huge loss of life contributed to the Suez Canal becoming a national symbol. It was viewed as a project steeped in the blood, sweat, and tears of labourers.

Egyptians take immense pride in the nationalisation of the Suez Canal — a key moment of historic importance which paved the way for other national mega projects, including the High Dam, and many poems and songs were written to celebrate the canal.

The huge loss of life contributed to the Suez Canal becoming a national symbol. It was viewed as a project steeped in the blood, sweat, and tears of labourers.

Canal expansion

The Suez Canal needed several phases of expansion and development to cope with changes in the maritime transport industry. The most recent development has been the New Suez Canal of 2015, which created a parallel 72km-long canal to "achieve the highest percentage of two-way, or dual course navigation through the canal, while adding an additional 50% in length to its existing maritime course.

This expansion reduced the northbound transit time from 18 to 11 hours. The waiting time was cut from 8-11 hours to three hours, slashing costs for shipping lines. The project to develop the Suez Canal's southern sector is ongoing and is expected to be completed by 2023. A new double canal is being built in the lakes area, which will increase the length of the new Suez Canal, opened in 2015, to 82 km.

The canal is Egypt's lifeline, as it is the country's primary sustainable foreign exchange source. According to 2022 statistics, it generates an average of $21.7 million per day from ship transit fees in both directions between Europe and Asia or between the centres of consumption and production. It also provides maritime and logistic services for ships and tankers that cross it.

At the end of 2022, the Suez Canal Authority announced unprecedented revenues amounting to $8 billion, compared to $6.3 billion in 2021. And according to the authority's statistics, the canal witnessed the transit of 23,000 ships in 2022, with an average of 63 ships per day, compared to 49 ships before the expansion of the project. The increase in additional fees played a significant role in boosting revenues ranging between 10 and 20 per cent.

dpa — A container ship sails through the Suez Canal. A cargo vessel that ran aground in Egypt's Suez Canal has been refloated, the Suez Canal Authority said.

The Ever Given catastrophe

Successive world crises have proven just how critical the Suez Canal is to the stabilisation of global supply chains. But it has not always been plain sailing. Problems attributed to politics, the climate, military matters, have regularly surfaced.

The Suez Canal was famously blocked by the grounding of Ever Given — one of the world's largest container ships — in March 2021. The vessel, was on a voyage from China to Rotterdam and was 151 kilometres into the canal when it got stuck, causinga full obstruction for more than six days, clogging up international trade and maritime navigation.

AFP — This picture on July 7, 2021 shows a view of the Panama-flagged MV 'Ever Given' container ship sailing along Egypt's Suez Canal near the canal's central city of Ismailia.

The incident raised international concerns on trade flows and put economies on high alert. It became the talk of international politics and global media coverage, sparking concern that countries were too reliant on the canal and needed to seek alternative maritime routes.

The last week of March 2021 was a nightmare for Egypt and its economy, which was reeling from the blockage. The effects of the blockage were felt by countries worldwide.

Huge price tag

Nonetheless, while there was no environmental impact, the blockage came with a huge bill. According to the shipping news provider Lloyd's List, costs can be put at $400 million per hour considering the resulting delayed deliveries and domino effects in the supply chain.

In other words, an obstruction in the canal can mean an international economic catastrophe. With 422 vessels lined up waiting for reopening, Ever Given cost international trade about $9.5 billion a day, based on the combined daily value of the canal's two-way transits.

An obstruction in the canal can mean an international economic catastrophe. With 422 vessels lined up waiting for reopening, Ever Given cost international trade about $9.5 billion a day, based on the combined daily value of the canal's two-way transits.

Lawsuits could have lasted for months and years after the Ever-Given incident. But the Suez Canal Authority received $550 million in compensation for losses and damages paid as a structured settlement.

The interconnected nature of global trade is demonstrated clearly by the size of these numbers, which dwarf the impact of a much longer period of disruption when the June War of 1967 turned the Suez Canal into a battlefield between Egypt and Israel in a conflict which lasted until 1975.

Damages are not restricted to daily revenues, but rather go beyond to cover the wider scope of delays in legally binding deliveries by megaships stuck in the canal with $100-$200 million losses per ship according to Bloomberg, quoting Chris Grieveson — a Managing Partner at the international law firm Wikborg Rein.

Germany came first among the European countries impacted by the incident. The Kiel Institute for the World Economy estimates that the Suez Canal accounts for 9% of Germany's trade. Most Arab countries depend on the canal for 10-20% of their imports from China and for 20-30% of imports from Europe and the US.

Exports from Gulf Cooperation Council countries also depend upon it, including a considerable amount of oil bound for European, Turkish, and other markets. According to International Energy Agency, the Suez Canal accounts for seaborn transits of 5% of world crude oil, 10% of oil products, and 8% of liquified natural gas.

Media frenzy

Last December, a media frenzy took over the country when the Egyptian parliament announced its approval of a bill submitted by the government regarding amendments to Law No. 30 of 1975 related to the Suez Canal Authority. Those amendments would enable the authority to establish its investment fund, which sparked widespread concern over the fundamental goal of this fund, with people worrying that it could be a masked bid to sell the canal's assets or put them up for investment.

The heated dispute and discussions prompted Parliament Speaker Hanafi Jabali to issue a statement reassuring Egyptians that the term 'assets', which was used in the law, does not indicate the canal itself. The government has denied using this law as a back door to privatising the canal, stressing that the canal and its management will remain wholly owned by the Egyptian state.

There will always be questions regarding the role of the IMF in amending the law related to the canal's system. This is due to expectations that Egypt is receiving additional funds from its international and regional partners, including new financing resources from the GCC and other partners, through the sale of state-owned assets.

According to a report by the Malcolm Kerr- Carnegie Middle East Centre issued last January, the latest agreement with the IMF came with stringent measures that Egypt must abide by, requiring it to implement wide-ranging structural reforms, reduce the state's imprint on the economy, and promote "governance and transparency."

In this photo released by Suez Canal Authority, tugboats pull the ship MV Glory in the Suez Canal between the cities of Port Said and Ismailiya, Egypt Monday, Jan. 9, 2023.

A northern alternative

Then, as now, the prospect of a blocked Suez Canal puts ships on course for the long way around, via the Cape of Good Hope. And while the South African Cape is the established alternative, there could be different options in the future.

The Cape of Good Hope links Asia and Africa via the southern tip of Africa and can meet the needs of cargo ships and tankers when there is a need for an alternative to the Suez Canal. But simple geography means it remains far from the ideal option compared to an undisrupted Suez Canal.

When clear, the Suez Canal saves ships thousands of nautical miles, enabling vessels to make more trips, save power, cut depreciation costs, reduce fees and insurance charges as well as minimise the risk of piracy along certain points in the alternative route.

The Suez Canal saves ships thousands of nautical miles, enabling vessels to make more trips, save power, cut depreciation costs, reduce fees and insurance charges as well as minimise the risk of piracy along certain points in the alternative route.

But there is another potential alternative. Talk about the Northern Sea Route (NSR), via the Arctic, may sound unconventional — not least because it involves the second most frozen seascape on Earth, with much of it only navigable in the summer and with the help of icebreakers— but climate change may change that, opening up a passageway between the Pacific and the Atlantic all year round.

AFP — Fishermen sit in boats in the Suez Canal near Ismailia in eastern Egypt on January 9, 2023.

Remaining competitive

While nuclear-powered icebreakers may be required, the NSR cuts 40% off the distance between Southeast Asia and Northwestern Europe compared to the Suez Canal — the sort of saving that may attract international mega trade carriers and huge tankers.

The NSR is racing against the clock to fund its infrastructure with massive investments from the likes of Emirati multinational logistics company DP World, among others, showing interest. Prior to the war on Ukraine, Russia announced, in August 2021, its intention to invest a staggering $30 billion in the NSR up to 2035. It is also boosting its military bases in the area.

These developments foreshadow intense competition with the Suez Canal by 2040. Egypt must do more to remain competitive. It must develop the canal's logistic services and adopt advanced marketing policies to sustain trade growth of one of the world's most important water crossings and Egypt's economic lifeline.

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