Is Egypt's plan to make the Suez a dual waterway feasible?

With more than half of Egypt's normal shipping traffic now diverting around Africa and its economy in dire straits, there are serious doubts about its plans to build a parallel canal

Nicola Ferrarese

Some critics say expanding the Suez Canal now is too risky. Others say it is better to invest revenue from the canal than service debt with it.

Is Egypt's plan to make the Suez a dual waterway feasible?

Marcelle Nasr

last update on 25 May 2024

With Suez Canal traffic down by two-thirds since Yemen’s Houthi militia began attacking ships last year, analysts might well ask why Egypt is hoping to double its capacity by building a parallel second lane along this lucrative maritime highway. It would be one of the country’s biggest 21st-century decisions so far, made at a time when the world’s politics were in a state of turmoil.

While the Houthis briefly felt the wrath of the Americans and its allies, they continue their attacks on merchant ships heading for the Red Sea and the shortcut to Europe that the Suez Canal has provided for decades. The UK’s Office for National Statistics (ONS) said traffic through Suez was down 66% between December 2023 and April 2024 after the Houthis launched their operations in solidarity with Gaza. The Egyptian finance minister put the figure at 60%.

Much needed revenue

Egypt needs the transit fees. Its economy was on the brink of collapsing under a colossal debt burden before February when the United Arab Emirates stepped in with a $35bn deal to buy a huge chunk of development land on Egypt’s Mediterranean coast.

Knowing the importance of Egypt, with its 110 million people, the European Union ($8bn), International Monetary Fund ($8bn), and World Bank ($6bn) all stepped in to help too. Egypt can now service its debt but is not yet out of the woods.

Egypt’s foreign currency revenues from the canal have been down by more than half since the Houthi attacks began diverting ships around South Africa instead. Cairo is keen to remedy the situation, but the Suez is not the only game in town.

Several longer-term development plans for trade routes, including overland sections, could offer an alternative to the canal. One example is the India-Middle East-Europe Economic Corridor (IMEC). The prospect of more competition over key shipping lanes motivates Egypt to expand the Suez Canal. Still, investing in a second lane to boost capacity and reduce bottlenecks would be a huge gamble.

Shutterstock — The container ship "MSC Maya" passes through the Suez Canal.

Place your bets

Proponents argue that the Suez Canal—which is still the most efficient route between the Indian and Atlantic Oceans—has a blockbuster future.

However, sceptics worry that the waters of the Red Sea between East Africa and the Arabian Peninsula will always be troubled. Before spending billions building a second lane, investors will want to know that the canal’s recent ill fortunes can be reversed and that it can once again be the primary shipping lane linking East and West in the future—a key link in the global supply chain.

Before the Houthi attacks, Egypt carried 12% of the world’s trade, including around 22% of its container trade, and about 40% of trade between Asia and Europe passed through. Egypt hopes those figures return, but the Houthis show no signs of stopping.

Iran, which backs the Houthi militia, is in a dispute with Washington after the US backtracked on a decision to release $7bn in Iranian funds that had been frozen due to sanctions. Iran is using its influence over the Houthis as a bargaining chip.

With the current wave of disruption stemming from attacks by the Iran-sponsored militia, some think expanding the canal now is too risky. Others say it is better to invest revenue from the canal than service debt with it.

The prospect of more competition over key shipping lanes motivates Egypt to expand the Suez Canal.

Centuries-long project

In the 16th century, the Ottomans tried to build a canal linking the Red Sea to the Mediterranean, but exorbitant costs prevented it from being finished. In the early 19th century, Napoleon Bonaparte of France wanted to do the same but was told (erroneously) that it would require a series of locks, which made it unfeasible.

Finally, in the 1850s, a French diplomat used his past contacts with the local ruler to gain a concession to build a 164km canal that would be open to all nations. The second Suez channel, if built, would run for 192km.

This would allow two-way traffic, which would slash transit times. A feasibility study led by leading consultancies is ongoing and expected to conclude at the end of 2025. Final approval would come from Egyptian President Abdel Fattah el-Sisi.

Suez has long been one of Egypt's primary sources of foreign currency income. Last year, revenue surpassed $10bn. When the transit fees took a hit from ships being redirected by the big shipping operators, Egyptians feared the worst. Yet the infusion of cash from the UAE, EU, IMF, and World Bank has given them hope that sky-high inflation may now come down. The EU's $8bn comprises loans, investments, and money to help Egypt tackle migration to Europe from North Africa.

Addicted to spending?

One reason Egypt's economy is in such a perilous state is that the government borrowed so heavily over the last decade, in part to fund big infrastructure projects. There are worries that a Suez expansion will be more of the same.

Some say that investment is better spent on healthcare, education, manufacturing, and export industries, which would benefit all citizens. The turbulence in the Red Sea has only amplified these calls, with concern that an expensive multi-billion dollar upgrade scheme may not pay for itself if the volatility continues to drive shipping traffic around Africa.

Dr Samir Ghattas, head of the Middle East Forum for Strategic Studies, points to what he calls "Iran's utilisation of the Houthis as a key instrument in the Red Sea" and thinks the Houthis now "perceive themselves as a potent force". Ghattas also highlighted "the shifting policy of the United States from containment to punitive measures against Iran" but noted "its potential ineffectiveness vis-à-vis the Houthis."

A Houthi helicopter flies over the cargo ship Galaxy Leader as Houthi fighters walk on the ship's deck in the Red Sea on 20 November 2023.

Retaining its position

Despite alternative infrastructure projects like the IMEC or a new Russia-backed trade route through the Arctic, Ghattas thinks the Suez Canal will retain its global relevance, particularly for the transit of oil transportation and the passage of super-tankers.

The canal can carry ships weighing up to 240,000 tonnes. Although some super-tankers are too large to traverse it, the Suez Canal can still handle larger ships than the Panama Canal—the world's other vital maritime trade waterway.

Ghattas is sceptical about the wisdom of expanding Suez at this time and points to prolonged delays already, with preliminary work pushed back by over a year. The canal already has a second lane along a partial 35km stretch. The academic said that the project's high cost added to the strain on Egypt's economy and contributed to the depreciation of its currency (the Egyptian pound) against the dollar. This contributed to unpopular reforms, such as reducing fuel subsidies.

Reason to worry

Economist Sami Raouf has a different take on the plans for a full second channel, calling its delay "a significant mistake". He felt that the partial channel route dug in 2014 and inaugurated in 2015 should have been extended.

"Egypt's significant delay in implementing the planned project led to complexity in the required (feasibility) studies and a postponement of up to 16 months," he said, adding that a full expansion may be made more feasible by the lower traffic levels.

With an opportunity to widen the old canal, Raouf also emphasised the need to focus on the industrial economic zone to recuperate the funds. To support his argument, he highlighted the gradual increase in Suez Canal revenues over time, with around $51bn generated over the past decade and nearly $11bn accrued by the end of last year, according to the Canal Authority.

Finally, Raouf stressed the importance of enhancing the value of land surrounding the canal by developing an export-based industrial zone, improving ship services, and establishing an integrated industrial area.

Whether this is the vision of a bold economic choice that will pay off handsomely or the pipe dream of a state still drunk on government largesse. Only time will tell.

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