Effect of policies and politics of developed and developing countries on India’s interests
In News: A giant container ship was stuck in Egypt’s Suez Canal for nearly a week now, blocking way for other ships to pass. At present, the cargo ship has been successfully refloated in the Suez Canal.
A Panama-flagged ship, The Ever Given, that carries cargo between Asia and Europe, ran aground in the narrow canal that runs between Africa and the Sinai Peninsula. Authorities have been making all possible attempts to free the vessel and reopen the waterway, which is very crucial for global shipping.
According to news reports, the blockage of the canal has resulted in a massive maritime traffic jam, causing delays in global shipment chain. According to official figures, some 19,000 vessels passed through the canal last year. Insurance company Allianz estimated that each day of the blockade was costing between $6-10 billion (€5-8.5 billion).
That’s hardly surprising, given that 13% of goods making up the global trade volume pass through the 193-kilometer (120-mile) Suez Canal. It’s the shortest route between the economies of Asia and Europe — and it can be a real chokepoint as the past few days have shown all too clearly.
The Impact
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.
India’s four-point plan
India has chalked out a four-point plan to deal with the situation arising from the blockage of the Suez Canal, including advising ships to re-route via the Cape of Good Hope. This plan was chalked out in a meeting convened by the logistics division, department of commerce, government of India.
It includes prioritisation of cargo, freight rates, advisory to ports and re-routing of ships.
Under prioritisation of cargo, Federation of Indian Export Organizations (FIEO), Marine Products Export Development Authority (MPEDA) and Agricultural and Processed Food Products Export Development Authority (APEDA) will jointly identify cargo particularly perishable cargo for priority movement and work with the shipping lines for the same.
Besides, CSLA assured that the freight rates as per existing contracts will be honoured.A request has been made to the shipping lines to maintain stability in freight rates during the period of this crisis. It was noted that the situation is temporary and is unlikely to have a long-lasting impact.
Once the blockage is over, it is expected that some bunching may take place, especially at the ports of JNPT, Mundra and Hazira. Ministry of Ports, Shipping and Waterways assured to issue an advisory to these ports so as to gear up arrangements and ensure efficient handling during the forthcoming busy period.
Shipping lines were advised through CSLA to explore the option of re-routing of ships via the Cape of Good Hope. It was pointed that such re-routing usually takes 15 additional days’ time.
This route is used for Indian exports and imports worth USD 200 billion to/from North America, South America and Europe. It includes petroleum goods, organic chemicals, iron and steel, automobile, machinery, textiles and carpets, and handicrafts, including furniture and leather goods.
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.
Place in news:
Cape of Good Hope
The Cape of Good Hope is a rocky headland on the Atlantic coast of the Cape Peninsula in South Africa.
A common misconception is that the Cape of Good Hope is the southern tip of Africa.
Contemporary geographic knowledge instead states the southernmost point of Africa is Cape Agulhas.
When following the western side of the African coastline from the equator, however, the Cape of Good Hope marks the point where a ship begins to travel more eastward than southward.
Cape Agulhas
Cape Agulhas is a rocky headland in Western Cape, South Africa.
It is the geographic southern tip of the African continent and the beginning of the dividing line between the Atlantic and Indian Oceans.
Connecting the Dots:
How significant is the Suez Canal for global shipping and what would be the implications if this blockage continues? Discuss.
