Blockage of Suez Canal

INTERNATIONAL/ ECONOMY

Topic:

• GS-2: Effect of policies and politics of developed and developing countries on India’s interests

Blockage of Suez Canal

Context: Global trade has been impacted after a container ship got stuck in the Suez Canal.

About Suez Canal

• Located in Egypt, the artificial sea-level waterway was built between 1859 and 1869 linking the Mediterranean Sea and the Red Sea. 
• It offers the shortest route between the Atlantic Ocean and lands around the Indian and western Pacific Oceans.
• The canal is one of the busiest waterways in the world, negating the need to navigate around the Cape of Good Hope in Africa and thus cutting distances by up to 7,000 km.
• Economic Lifeline: The canal continues to be the lifeline for all trade between the West and East as 10 per cent of the global trade passes through it every year. The average 50 ships that pass through it daily carry about $9.5 billion worth of goods, every day.

Suez Canal’s Long History

• The canal has existed in one form or the other since construction started under the reign of Senausret III, Pharao of Egypt (1887-1849 BC). Many kings who ruled later kept improving and expanding this canal. 
• Construction picked up pace around 300 years back as maritime trade between Europe and Asia became crucial for many economies.
•  In the mid-1800s, French diplomat and engineer Ferdinand de Lesseps convinced the Egyptian viceroy Said Pasha to support the canal’s construction.
• In 1858, the Universal Suez Ship Canal Company was tasked to construct and operate the canal for 99 years, after which rights would be handed to the Egyptian government. 
• Despite facing multiple problems ranging from financial difficulties and attempts by the British and Turks to halt construction, the canal was opened for international navigation in 1869.
• The French and British held most of the shares in the canal company. The British used their position to sustain their maritime and colonial interests by maintaining a defensive force along the Suez Canal Zone as part of a 1936 treaty.

Egypt takes over Suez Canal

• In 1954, facing pressure from Egyptian nationalists, the two countries signed a seven-year treaty that led to the withdrawal of British troops.
• In 1956, Egyptian President Abdel Nasser nationalised the Suez Canal to pay for the construction of a dam on the Nile. This led to the Suez Crisis with UK, France and Israel mounting an attack on Egypt. 
• The conflict ended in 1957 after the United Nations got involved and was followed by the first instance of the UN Peacekeeping Forces being deployed anywhere in the world.
• In 1967, Nasser ordered the peacekeeping forces out of Sinai leading to a new conflict between the two countries. Israelis occupied Sinai and in response, Egypt closed the canal to all shipping. 
• The closure lasted until 1975, when the two countries signed a disengagement accord. The canal was the focal point of the Arab-Israeli War of 1973, with the Arab coalition led by Egypt and Syria.

Impact of longest-ever accidental closure of Suez Canal

• Blocking of all Traffic: On March 23rd, due to weather obstructions a giant container ship, MV Ever Given, en route from China to the Netherlands ended up getting stuck in one of the canal’s narrow stretches, thus blocking all traffic. 
• Stress on Global Supply Chain: Over 200 ships are stuck on both sides of the canal putting stress on global supply chains.
• Increased Oil Prices: The long-term impacts of this block will depend on how long it lasts, but some countries have already seen a rise in oil prices after the blockage.
• India- the biggest importer via Suez Canal: India is the top importer of crude oil and products via the Suez Canal, higher than China, South Korea or Singapore. If the issue is not solved early then it will start to have implications on the bigger trade flow and shipping sectors and will begin to affect refining operations on a broader scale
• India-US relations: For India, though, the main hit could be seen on the import and export of ethane with the US, and the imports of crude from Latin America, the uptake of which was recently increased. The longer the closure, the more disruptive the impact is likely to be.
• Global Dependence on this narrow waterway: The incident also raises questions about finding solutions to prevent future accidents and reducing the global dependence on this narrow waterway.