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All you wanted to know about Suez block

Hari Viswanath | Updated on March 29, 2021

Desert storms are usually localised events. They are not something that Indians have had to worry about, except those living in the Thar. In fact, the term ‘Desert Storm’ only rekindles nostalgia for most Indians given what happened on April 22, 1998, when a young 24-year-old Tendulkar played a master-class innings at a sand-storm affected cricket match in Sharjah. However, as though the world economy has not had enough to test its resilience in the last one year, a desert storm set off a new challenge that tested the mettle of the global economy, this past week.

What is it?

Impacted by strong winds blowing across the Sinai desert last week, ‘Ever Given’ — one of the largest container ships in the world — ran aground in the Suez Canal and was wedged between its banks. This effectively brought to a grinding halt the movement of ships across the Suez Canal that is the lifeline of the maritime trade between Europe/America and the Asian continent. After persistent efforts though, officials seem to have managed to partially dislodge the ship to free up a pathway on Monday.

The Suez Canal offers the most direct route between the North Atlantic and Indian Ocean, with the alternative route via Cape of Good Hope around Africa stretching the transit time by 10-14 days more. The Suez Canal reduces maritime route between Europe and Asia to a little over 100 nautical miles (length of the canal is around 120 miles) from the 3,000 nautical miles around the Cape of Good Hope.

Why is it important?

In a world accustomed to just-in-time supplies for decades now, a delay of 10-14 days can make many a manufacturing plan go awry. Over 10 per cent of global maritime trade transits through the Suez Canal. Although political brinkmanship may have threatened globalisation in recent years, we still live in a highly globalised world depending on global supply chains for many things that we consume on a day-to-day basis and on critical/ad-hoc basis. That 15 countries accounting for about 30 per cent of the world’s population and 30 per cent of global GDP only recently signed the Regional Comprehensive Economic Partnership is clear validation that commitment to global trade is strong, despite tariff wars between a few major economies.

According to an UNCTAD report, maritime trade remains the backbone of international trade, accounting for around 80 per cent of global trade by volume and around 70 per cent by value till recently. The Suez Canal was important enough for Britain and France, after starting to withdraw from imperialism post World War II, to invade Egypt in 1956 when Egyptian leader Colonel Nasser nationalised the Suez Canal concessionary company (then under control of England and France). Both countries subsequently retreated under global pressure.

Why should I care?

Just the one ship ‘Ever Given’ was carrying 20,000 containers filled with various things from shoes and dresses to laptops and mobiles. Based on recent data, around 50 ships pass through the Suez Canal daily. According to data from shipping journal Lloyd’s List, $10 billion of traded goods pass through the canal each day.

The blockade of last few days had already caused strains to global supply chains and a nascent economic recovery that was already reeling under other constraints like semiconductor/chip shortage that has impacted industries ranging from automotive to mobile phones.

Thankfully though, at the time of writing this, the Suez Canal Authority announced that the stern of ‘Ever Given’ has been freed from the shoreline, allowing some space to be cleared for ships waiting to pass through.

The bottomline

The Suez block may have been cleared without event. But the global economy can certainly do without such disruptions right now. After all, it was one last straw that broke the camel’s back.

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Published on March 29, 2021

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