Suez Canal Closure Concerns Go Viral

Shockingly, the "pundits" have suddenly realized that courtesy of the upheaval in Suez, the canal with the same name may be closed, which would wreak havoc on shipping costs. Once again, Zero Hedge was just ahead of the curve: "Egyptian Stock Market Plunges Over 11% To Fresh Multi-Year Lows; Is A Suez Canal Transit Halt Imminent?" The just announced countrywide curfew will not make Suez Canal operability any easier. For those who are concerned about what a Suez closure means, we recreate what we wrote previously on the topic. And just in from Reuters, Energy Secretary Steven Chu has declined to say if he is worried Egypt protests may disrupt Mid-East oil, but believes that serious disruptions will have oil prices. By harm he means make them surge higher.

From Egyptian Stock Market Plunges Over 11% To Fresh Multi-Year Lows; Is A Suez Canal Transit Halt Imminent?

And while the important part of the world may ignore what is happening in Egypt, after all it is not US banker money thay is being lost, they may want to consider this: according to reports, there has been live fire in Suez, where the police headquarters have been taken over. More importantly, according to the Guardian, we may see the first army insubordination in this city: "a lawyer and executive director for the Arabic Network for Human Rights Information, has tweeted that some army units in Suez are refusing to support the crackdown against the people." Which means the government may be about to lose control over Suez... And the Suez Canal.

What is special about the Suez Canal? It just happens to be one of the seven most important oil chokepoints:

Suez Canal

Closure of the Suez Canal and SUMED Pipeline would add 6,000 miles of transit around the continent of Africa.   
The Suez Canal is located in Egypt, and connects the Red Sea and Gulf of Suez with the Mediterranean Sea, covering 120 miles. Petroleum (both crude oil and refined products) accounted for 16 percent of Suez cargos, measured by cargo tonnage, in 2009. An estimated 1.0 million bbl/d of crude oil and refined petroleum products flowed northbound through the Suez Canal to the Mediterranean Sea in 2009, while 0.8 million bbl/d travelled southbound into the Red Sea. This represents a decline from 2008, when 1.6 million bbl/d of oil transited northbound to Europe and other developed economies.

Map of Suez Canal


Source: U.S. Government Click here to zoom

Almost 35,000 ships transited the Suez Canal in 2009, of which about 10 percent were petroleum tankers. With only 1,000 feet at its narrowest point, the Canal is unable to handle the VLCC (Very Large Crude Carriers) and ULCC (Ultra Large Crude Carriers) class crude oil tankers. The Suez Canal Authority is continuing enhancement and enlargement projects on the canal, and extended the depth to 66 ft in 2010 to allow over 60 percent of all tankers to use the Canal.

According to the Energy Library, closing the Suez canal would add 6,000 miles of transit time across the Cape of Good Hope:

The Suez Canal, Egypt is one of the world's most important waterways and its Sumed Pipeline is considered a significant geographic oil transit chokepoints from the Red Sea to the Mediterranean Sea. The Suez Canal is west of the Sinai Peninsula and serves as a two-way water transport route between Europe and Asia. It is 190 km long and 300 meters wide. The canal supports approximately 8% of the world’s shipping traffic with almost fifty vessels traveling through the canal daily.

In 1967, the canal was closed due to the outbreak of the Six-Day War. At the time, Israel has taken over the Sinai Peninsula which resulted in the Suez Canal becoming a buffer zone between the forces of fighting. The Suez Canal was reclaimed by the Egyptians in the 1973 Arab-Israeli War and was reopened in 1975. Since its reopening, the canal has been widened twice.

The Suez Canal is considered a geographic “chokepoint” due to its influence in the world oil trade and because its narrow-width could be easily blocked, causing disruption to oil transport. Oil shipments from the Persian Gulf travel through the Canal primarily to European ports, but also to the United States. In 2006, an estimated 3.9 million bbl/d of oil flowed northbound through the Suez Canal to the Mediterranean, while 0.6 million bbl/d traveled southbound into the Red Sea.

Over 3,000 oil tankers pass through the Suez Canal annually, and represent around 25 percent of the Canal’s total revenues. With only 1,000 feet at its narrowest point, the Canal is unable to handle large tankers. The Suez Canal Authority (SCA) has discussed widening and deepening the Canal to accommodate VLCCs and Ultra Large Crude Carriers (ULCC).

The 200-mile long Sumed Pipeline, or Suez-Mediterranean Pipeline, also provides a route between the Red and Mediterranean Seas by crossing the northern region of Egypt from the Ain Sukhna to the Sidi Kerir Terminal. The pipeline provides an alternative to the Suez Canal, and can transport 3.1 million bbl/d of crude oil. In 2006, nearly all of Saudi Arabia’s northbound shipments (approximately 2.3 million bbl/d of crude) were transported through the Sumed pipeline. The pipeline is owned by Arab Petroleum Pipeline Co., a joint venture between EGPC, Saudi Aramco, Abu Dhabi’s ADNOC, and Kuwaiti companies.

Closure of the Suez Canal and the Sumed Pipeline would divert tankers around the southern tip of Africa, the Cape of Good Hope, adding 6,000 miles to transit time.

Then again, in Bernanke central planning world, this development will likely mean that oil prices are about to plunge to all time lows.

Comments

No comments yet! Be the first to add yours.