Egypt's Unrest and Its Place In World Trade

Scenes of rioters in Cairo’s Tahrir Square have followed hot on the heels of similar events in Tunisia that resulted in the president fleeing the country. While we should be cheering from the sidelines as the rule of dictators across the Middle East is brought to an end and (hopefully) democratic government takes its place, most of us probably have not seen these developments as trade-related. In the case of Tunisia the demonstrations were relatively short-lived and peace has thankfully resumed.

Tunisia is not a major metals producer and its energy exports in the form of oil and gas are modest by Middle Eastern standards. Arguably, the same could be said of Egypt, although Egypt is industrially more developed; being a major regional steel producer it is still a net importer of steel products, according to Wikipedia. But the country is an exporter of gold and aluminum — both in primary and semi-finished forms — and of natural gas with both LNG facilities and pipelines stretching into Israel, Jordan and Syria. Although disruptive to the regional economy, a collapse in exports from Egypt would not have a major impact on the world’s metals or energy markets although both cotton and oil futures have been panicked by recent events. Egypt’s significance to world trade is more because of its greatest man-made asset (its greatest natural asset unquestionably being the Nile): the Suez Canal. This 120-mile stretch of waterway (in small part thanks to my great-grandfather, who oversaw the dredging of the canal in the early part of the last century) carries some 8 percent of global seaborne trade including 14 percent of the world’s LNG traffic and 4.5 percent of global oil supplies, but more crucially, a significant proportion of the Asia-to-Europe container traffic. According to GlobalPost, about 2 million barrels of oil traverse the canal each day — roughly 5 percent of the global amount in transit while another 2.3 million bpd go through Egypt’s Sumed pipeline.

So far the canal has not been severely impacted by the events in Cairo, Suez or Alexandria. Traffic is still moving through the canal, but several shipping companies have ordered their vessels not to change crews in the port of Suez to avoid the risk of becoming involved. According to a NY Times article, there are already signs of slowing cargo operations at the Alexandria and Damietta Ports, which handle container and bulk shipments of grains and other goods. Employees must leave their posts early to comply with the government curfew that begins at 4 pm and a Dow Jones article notes that Maersk Line, Safmarine and Damco offices are closed. APM Terminals’ Suez Canal Container Terminal (SCCT) in Port Said is not operating and only a skeleton crew is manning the reefer containers and IT systems.

A FT article explains how the Suez Canal’s significance to the global oil trade has declined over the last decade or so, but how its significance to container traffic has increased. In recent years, according to Erik Nikolai Stavseth, an analyst at Oslo-based Arctic Securities, oil tankers have accounted for only 15-20 percent of canal traffic. About 50 percent of transits now consist of container ships taking Asian manufactured goods to Europe and return sailings.

So far disruption has been minimal and no one is saying its closure would cut off trade between Asia and Europe; vessels would have to take the much longer Cape of Good Hope route around the southern tip of Africa adding up to two weeks to the voyage. Maybe of more significance is that this vulnerability of world trade to the free movement of goods through the canal is a wake-up call for the consequences of further unrest in other parts of the Middle East. Riots have already resulted in a change of government ministers in Jordan and other countries are looking on with trepidation. The Gulf states can probably afford to buy off their populations, as can Saudi Arabia, but Syria, Pakistan and Iran are all at risk of a population deciding they have had enough of authoritarian rule. Watch this space.

–Stuart Burns

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