Suez Canal delivers in tough year

The Canal has emerged as one of the few bright spots in an otherwise flailing Egyptian economy, with revenues touching a record high in 2010/11

It has been a testing few years for the Suez Canal. First, a rapid rise in pirate attacks in the Gulf of Aden between Yemen and Somalia in 2008 threatened to affect security along the canal. Then it had to deal with the global economic downturn, which brought a drop in trade and a reduction in shipping volumes.

With the world economy starting to recover in early 2011, Egypt was engulfed by a political crisis that once more raised concerns over the security of the canal. And now, just as a degree of political stability has returned, a sovereign debt crisis in Europe threatens to cause another downturn in trade.

Any threat to the security of the Suez Canal would be a major setback not just for Egypt, but also for the global shipping industry. Opened for international navigation in 1869 and famously nationalised by then-president Gamal Abdel Nasser in 1956, the 190-kilometre canal provides a low-cost alternative to sailing around the entire African continent.

A voyage from Singapore to Rotterdam in the Netherlands is 29 per cent shorter via the Suez Canal than around the Cape of Good Hope. The distance from Jeddah on the west coast of Saudi Arabia to Piraeus in Greece is cut by 88 per cent.

Income stream from Suez Canal

The canal is also a crucial source of revenue for the Egyptian government. Income from the Suez Canal accounts for more than 3 per cent of gross domestic product and is the fourth-largest source of foreign currency after tourism, exports and remittances.

“It’s important for the economy,” says Mohamed Abu Basha, an economist at EFG Hermes in Cairo. “It’s important for the current account, it’s important for foreign exchange and it’s important for the state budget. It makes about 6 per cent of the government’s tax revenues. In the 2010/11 fiscal year, it was responsible for about 9 per cent of foreign exchange income in the current account.”

The coincidence of rampant piracy with a downturn in the global economy in 2008-09 was a major test of the canal’s resilience. At the time, the piracy threat alone was potentially so serious that it could cut off the global shipping route through the Suez Canal, according to a report published in October 2008 by Chatham House, a UK-based foreign policy think-tank.

The Maritime Bureau Piracy Reporting Centre says about 1,600 acts of piracy were carried out in 2006-10. A substantial number of these attacks were perpetrated by Somali pirates against shipping in the Gulf of Aden between Somalia and Yemen, the gateway to the Suez Canal. In 2008 alone, more than 120 pirate attacks were reported in the Gulf of Aden, including the capture of a Saudi supertanker transporting an estimated $100m-worth of oil.

As it happened, the Suez route was never cut off. But the risk of using the canal increased significantly and so did the cost.

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Richard Nield is a freelance journalist, photographer and filmmaker covering the Middle East and Africa. In 10 years covering the region, he has been published and broadcast by clients including the BBC, Reuters, Al Jazeera, The Economist, The Financial Times, The Independent and Foreign Policy magazine. He has reported from throughout the region, including Algeria, Egypt, Libya, Morocco, Tunisia, South Sudan, Jordan, Lebanon, Syria, Kuwait and Saudi Arabia.