FPJ Edit: Suez Canal blockage exposes fragility of global trade

As bottle corks go, the MV Ever Given, the grounded container ship which has precipitated the longest accidental closure in the Suez Canal’s history, is huge. It is nearly as long as the Empire State Building, is tall and almost as wide as the wingspan of a Boeing 747 jumbo jet, which makes extricating it a giant-sized headache. But the impact it has had on world trade is even bigger.

After all, almost a tenth of all the world’s traded goods pass through the 193-metre-long artificial canal which links the Red Sea to the Mediterranean and provides the fastest transit for goods headed from Asia to Europe and America and for oil and gas from West Asia to the rest of the world. More than $10 billion worth of goods transit through the 150-year-old waterway, slightly more than half of it westbound. Its closure, therefore, has hit both producers and suppliers, on both sides of the globe.

The biggest impact, of course, will be on energy prices, since the waterway is a critical link in the supply chain between crude and gas producers in West Asia and the Persian Gulf region and refiners and consumers elsewhere. Nearly two million barrels of crude oil transit through the Suez canal towards Europe and North America, as well as over a million barrels of refined products like petrol and diesel, apart from nearly 10 per cent of LPG (liquified petroleum gas).

For India, the impact is worse. India imports roughly half-a-million barrels of crude per day via Suez Canal and sends about 200,000 barrels of refined products in the other direction daily. A prolonged closure will drive up crude oil and gas prices for India as well as delay deliveries and also severely dent export earnings – refined petroleum products account for nearly 14 per cent of India’s exports.

The impact on the supply chain chokes for other industries can be equally dire – the automobile industry, for instance, both in India and elsewhere, is already struggling with a shortage of electronic controllers. Delays of over a week can have serious repercussions for the global manufacturing sector, which is now highly automated and robotised and dependent on ‘just-in-time’ deliveries of inputs.

The Suez Canal crisis has once again exposed the fragility of the maritime logistics backbone on which the world’s economies have become dependent. Nearly 90 per cent of the world’s cargo is moved by sea, and a bulk of it has to transit through narrow chokepoints like the Suez and Panama Canals, the Straits of Hormuz in the Persian Gulf and the Malacca Straits in Asia.

Apart from the challenges of geography, these regions are also politically volatile and the scene of active conflict, as well as attacks by pirates and other lawless elements. Given its dependence on these trade routes, India needs to work closely with friendly nations – both in the region and elsewhere – to ensure that its interests are protected. It should also lead efforts to find alternative routes, as well as the modernisation and upgradation of key waterways like the Suez Canal.

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Free Press Journal