July 28, 2011

Suez: Between the devil and the deep Red Sea

Almost eighteen thousand ships transited the Suez Canal last year. The Suez- erstwhile 'Highway to India' during the British Raj but equally vital to East-West marine traffic today, cuts sailing time between Mumbai and Europe by almost four and a half thousand nautical miles- roughly two weeks. That is a lot of time and money, especially when one multiplies the numbers by eighteen thousand. Last year, 646,000 tonnes of cargo- including much oil- passed through the canal, and the Egyptians collected more than 4.7 billion dollars in tolls alone, ignoring significant other income from spin-off business that the canal generates.

Needless to say, any closure of the Canal, even temporarily, would be catastrophic for shipping. Which is why the recent resurgence of the revolution- the second revolution, as some say- in Egypt should worry the maritime world.

At the beginning of July, massive protests erupted once again in Cairo's Tahrir Square and in the city of Suez, besides in Luxor, Alexandria and other Egyptian locales. The "Friday of Final Warning” protests saw tens of thousands come out into the streets for a second week, demonstrating against the military-dominated government that is seen to be closely allied with ousted President Hosni Mubarak. The Supreme Council of the Armed Forces (SCAF) generals, headed by the de-facto President Field Marshal Hussein Tantawi, have done little to change things in Egypt, and people are getting hostile against their rulers again, saying that Mubarak's family, cronies and the security agencies responsible for the killing and torture of thousands are being protected by the SCAF. The protestors are also unhappy at the postponement of elections. Strikes have hit Egypt hard, including by workers at the Suez Canal Authority who have threatened to shut down the Suez Canal. Thousands of troops have been moved to Suez by the authorities to guard against this happening.

Curiously, the Muslim Brotherhood- the right wing Islamic Organisation banned and suppressed for years in Egypt and from where much of the ideology behind the Al Qaeda types has historically emanated- has taken a position contrary to what many would have thought; it is seeking an accommodation with the military forces and refusing to take part in demonstrations so far. This is doubly curious since it is believed that the SCAF is backed by the US; one wonders if the US is negotiating with the Brotherhood directly and secretly.

Shipping is always hostage to geopolitical events; the Egyptian unrests are no exception. The threats by the protestors to shut down the Suez are alarming, but it is hard to imagine that the world- addicted to oil as it is- will countenance any long-term closure of the canal. Nevertheless, the possibility does exist. Even a temporary shutdown, should the demonstrations get out of hand, will hit the industry very hard; imagine the impact on just the scores of ships that are heading for the canal- or awaiting transit at any point of time- that will have to be re-routed. Consider the cost of adding two weeks to a Europe- India passage. Moreover, remember that many Egyptian military units refused to fire on demonstrators earlier this year; some even sided with them. One cannot therefore count on the Egyptians being able or willing to keep the canal open. Will the international community step in militarily to do so in this eventuality? Egypt is not Libya; a foreign- especially Western- military action in Egypt will be messy and will almost certainly attract Islamist fighters from everywhere in the region, and beyond. The last thing shipping needs is military conflict or terrorism along the length of the Suez Canal.

But it is not just closure of the canal that shipping has to worry about. We must consider that the Egyptian revolt, like many other 'Arab Spring' uprisings, will take months, if not years, to play out. In addition, one size does not fit all; the Syrian revolt is markedly different from the one in Yemen, which is different from the one in Tunisia and Bahrain, and so on. Some western governments will be driven to meddle- as they usually are- in exchange for promises of oil or resources or trade- or political influence. The situation is likely to remain messy for a while; ships passing through the Suez will be less secure if Egypt turns more violent or insecure.

The economic and security implications of this uncertainty for shipping will likely be large and long-term; it will, for a start, require maritime companies to keep abreast of developments on a day-to-day basis. I can easily foresee a scenario where professional security companies will be contracted to provide intelligence to owners, or those that trade in unstable areas, or those whose ships pass through dangerous waters, or even those that are contemplating fixing a charter in the broader region. There may even be some 'security vetting' built into company systems before a route or charter is fixed. Whether armed guards are placed aboard or not will be - like in the case of piracy- a much more hairy and complicated exercise here.

Security related costs in shipping are set to rise, I think, and not just because of Somali pirates or Egypt and its Suez Canal, but because a large and commercially vital part of the world- a major oil producing area with connected maritime passages and choke points- is today unstable or dangerous, and is likely to remain so for a bit. There will be continued commercial uncertainty- even losses- as long as the Egyptian unrest continues. To cope with this, commercial shipping may well have to find- in the existing gloomy scenario of overtonnage, economic slowdown, rising fuel costs and falling freight rates- another rabbit to pull out of the same old hat.


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