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Further Reading

Suez Canal

Oil prices shot up to above $100 per barrel in reaction to the Egyptian unrest due to fears that tanker traffic through the Suez Canal, a key oil and LNG transit route, might be disrupted, and over concerns of turmoil elsewhere in the oil-rich Middle East. Experts say the likelihood that Egypt would close the canal is low. There has been no threat of closure, and there probably won't be. Egypt deployed troops 28 January 2011 to help protect the SuMed pipeline transporting crude alongside the Suez Canal, while the facility's own guards doubled their number of sentry posts.

The Suez Canal carries about 2.5 percent of world oil output. Closure of the Suez Canal [and the SUMED Pipeline] would divert oil tankers around the southern tip of Africa, the Cape of Good Hope, adding approximately 6,000 miles to transit, increasing both costs and shipping time. According to a report released by the International Energy Agency (IEA), shipping around Africa would add 15 days of transit to Europe and 8-10 days to the United States.

Strategically and economically one of the most important waterways in the world, the Suez Canal is located in Egypt, and connects connects Port Said on the Mediterranean Sea with the port of Suez on the Red Sea. The Suez Canal provides an essentially direct route for transport of goods between Europe and Asia. The longest canal in the world without locks, the Suez Canal is one of the world's most heavily traveled shipping lanes and the fastest crossing from the Atlantic to the Indian oceans. The Canal is variously reported as between 163 and 195 kilometers (approximately 100-121 miles) long. Because no locks interrupt traffic on this sea level waterway, the transit time from end to end averages about 13-15 hours.

The Suez Canal has a single lane with several passing zones and no locks. The maximum sailing draft as of 2009 was 62-feet according to the Suez Canal Authority. Some vessels may be constrained by the Suez Canal Bridge which is 223-feet high. The channel accommodates what is known as the Suezmax, which is almost exclusively tankers and has a width of up to 151-feet and 150,000 tons. The existing width can accommodate a vessel of up to 230-feet, but there are few tankers that meet this criterion and can fit within the depth. However, improvements that were completed in 2010 increased the depth to 66-feet. The improvements allow supertankers to pass through.

For comparison, the Panama Canal is a network of artificial channels and locks that connect various lakes. The width of the existing lock chambers (Gatun, Miraflores, and Pedro Miguel) are 110 feet wide by 1,050 feet long. However, the largest vessel that can transit the canal is a Panamax vessel. EM 1110-2-1613 dictates that the maximum sailing dimensions are 105.75 feet (32.2 meters) beam width, 950 feet (289.6 meters) long, and 39.5 feet (12.5 meters) depth in fresh water (less in the dry season) and about 38.5 feet in saltwater. New locks to be completed in 2014 will be 180 feet wide, 1,400 feet long, and 60-feet deep. This means that a post-Panamax vessel capable of sailing through the canal will be up to 160 feet beam, 1,200 feet long, and 50-feet deep.

In the 13th century BC, the pharaohs created a canal linking the Nile River delta and the RedSea. The Suez Canal remained navigable, but was neglected for several thousand years. It was re-excavated or modified many times, then finally abandoned in the 8th century AD. On April 25, 1859, the Compagnie Universelle du Canal Maritime de Suez (Universal Company ofthe Maritime Suez Canal) began re-dredging the canal. The Canal was built under the direction of Ferdinand de Lesseps of France using primarily Egyptian labor. After ten years of construction and costs more than double the original estimate, the Suez Canal opened on November 17, 1869, with a licenseto operate for 99 years at a total cost of $100 million.

The Suez Canal's completion was celebrated by many events, including the commissioning of Verdi's "Aida" for the new opera house and the building of great palaces such as the Omar Khayyam (originally constructed to entertain the French Empress Eugenie, and now the central section of the Cairo Marriott Hotel). Lesseps, who had become a world hero of civil engineering as well as a national icon as the builder of the Suez Canal, believed he could repeat his success with a sea-level canal across the Isthmus of Panama. He discovered too late the exceptional difficulties of the site.

In the late nineteenth century, the British commonly referred to the Suez Canal as the "Lifeline of the Empire" because it provided a strategic shipping route to British colonies, particularly India. In 1875, the Conservative government of Benjamin Disraeli bought the indebted Egyptian ruler Ismail's 44% shareholding in the Suez Canal for £4 million to secure control of this strategic waterway, a channel for shipping between the United Kingdom and India since its opening six years earlier under Emperor Napoleon III. Joint Anglo-French financial control over Egypt ended in outright British occupation in 1882. In 1888 the Convention of Constantinople was signed - "respecting the free navigation of the Suez Maritime Canal" and opening the canal to ships of all nations.

Subsequent wars and skirmishes passed control of the Canal to various powers including the United Kingdom, Egypt, Israel, and the United Nations. In 1956, the Suez Canal was nationalized by the Egyptian Government. On June 5, 1967, during the Six-Day War, it was closed and blockaded against Israel by Egypt. It was reopened on June 10, 1975. A multinational observer force including the United States, Israel, and Egypt currently oversees the Canal, which is owned and maintained by the Suez Canal Authority of the Arab Republicof Egypt. According to the international rules which govern navigation through Suez, Egypt cannot forbid any vessel from passing through the Suez Canal if there is no war between Egypt and that country.

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.

Year-to-date through November of 2010, petroleum (both crude oil and refined products) as well as liquefied natural gas (LNG) accounted for 13 and 11 percent of Suez cargos, measured by cargo tonnage, respectively. Total petroleum transit volume was close to 2 million bbl/d, or just below five percent of seaborne oil trade in 2010. Almost 16,500 ships transited the Suez Canal from January through November of 2010, of which about 20 percent were petroleum tankers and 5 percent were LNG tankers.

The 200-mile long SUMED Pipeline, or Suez-Mediterranean Pipeline provides an alternative to the Suez Canal for those cargos too large to transit the Canal (laden VLCCs and larger). The pipeline has a capacity of 2.3 million bbl/d and flows north from Ain Sukhna, on the Red Sea coast to Sidi Kerir on the Mediterranean. The SUMED is owned by Arab Petroleum Pipeline Co., a joint venture between the Egyptian General Petroleum Corporation (EGPC), Saudi Aramco, Abu Dhabis National Oil Company (ADNOC), and Kuwaiti companies. SuMed has a carrying capacity of 2.5 millionbarrels a day and a disruption there would have a bigger impact on oil and shippingmarkets than a shutdown of the canal itself.

The majority of crude oil flows transiting the Canal travel northbound, towards markets in the Mediterranean and North America. Northbound canal flows averaged approximately 428,000 bbl/d in 2010. The SUMED pipeline accounted for 1.15 million bbl/d of crude oil flows along the route over the same period. Combined, these two transit points were responsible for over 1.5 million bbl/d of crude oil flows into the Mediterranean, with an additional 307,000 bbl/d travelling southbound through the Canal. Northbound crude transit represented a decline from 2008 when 940,000 bbl/d of oil transited northbound through the Canal and an additional 2.1 million travelled through the SUMED to the Mediterranean.

Total oil flows from the Suez Canal declined from 2008 levels of over 2.4 million bbl/d in 2008 to just under 2 million bbl/d on average in 2010. Flows through the SUMED experienced a much steeper drop from approximately 2.1 million bbl/d to 1.1 million bbl/d over the same period. The year-on-year difference reflects the collapse in world oil market demand that began in the fourth quarter of 2008 which was then followed by OPEC production cuts (primarily from the Persian Gulf) causing a sharp fall in regional oil trade starting in January 2009. Drops in transit also illustrate the changing dynamics of international oil markets where Asian demand is increasing at a higher rate than European and American markets, while West African crude production is meeting a greater share of the latters demand. At the same time, piracy and security concerns around the Horn of Africa have led some exporters to travel the extra distance around South Africa to reach western markets.

Unlike oil, LNG transit through the Suez Canal has been on the rise since 2008, with the number of tankers increasing from approximately 430 to 760, and volumes of LNG traveling northbound (laden tankers) increasing more than four-fold. Southbound LNG transit originates in Algeria and Egypt, destined for Asian markets while northbound transit is mostly from Qatar and Oman, destined for European and North American markets. The rapid growth in LNG flows over the period represents the startup of five LNG trains in Qatar in 2009-2010. The only alternate route for LNG tankers would be around Africa as there is no pipeline infrastructure to offset any Suez Canal disruptions. Countries such as the United Kingdom and Italy received more than half of their total LNG imports via the Suez Canal in 2009 while over 90 percent of Belgiums LNG imports transited through the canal.

Beginning in 1870, with 486 vessels, having a tonnage of 436,000 tons, there was a steady increase until 1875, when it had reached nearly fifteen hundred ships and over 2,000,000 tons. After a few years of quiescence came a second period of rapid increase, from 1880 to 1883, in the latter year the figures of 3300 ships and 5,800,00a tons being reached. Since then there has been a slowly increasing tonnage, reaching the maximum figure of 8,700,000 tons in 1891, but falling off somewhat since that year. In 1896 the figures were 3409 ships with a tonnage of 8,594,307. The importance of these figures may be made clearer by recalling the fact that the foreign tonnage entering at the port of New York has rarely exceeded 7,500,000 tons in any year, and that the foreign tonnage for all the ports of the United States, both entering and clearing, is about 35,000,00a tons. That is, the traffic through the Suez Canal, measured by volume, is almost a quarter of the total foreign trade of the United States. But if measured by value, the importance of the canal traffic is seen to be much greater. The imports and exports of India, via the Suez Canal, are equal in value to $360,000,000, which is nearly one-quarter of the value of the foreign trade of the United States. As the Indian trade constitutes rather less than one-half the total traffic of the Suez Canal, the value of the whole of that traffic must be not far from a half of the foreign trade of the United States. 64-kilometer (40-mile) long Panama Canal Sailing vessels did not find it advantageous to use the canal, and continued on the old route around the Cape of Good Hope. But the canal, by making practicable the use of steamships in the oriental trade, brought about an even greater revolution in the character of the shipping business to the East. By the Cape route coaling places were few, and the facilities for coaling expensive; the consequence was that the enormous expense of coaling at these out-of-the-way places, with the loss of freight room from the extra space needed for coal, made the use of steamers unprofitable. But by the canal route a steamer could coal at Gibraltar, Malta, Port Said and Aden, where coal could be furnished at moderate rates; while the space saved from coal could be used to carry a larger cargo. Accordingly, a large number of new iron screw steamers were soon constructed for the trade with the East, and replaced a large percentage of the sailing vessels. One change in the shipping industry that was expected from the construction of the Suez Canal has not been realized. It was predicted that the geographical advantage given to the Mediterranean ports by the new route. would soon enable them to regain the position they had held in the Middle Ages as the carriers of eastern produce to the markets of Europe. In England it was felt that the canal would seriously threaten British maritime supremacy. But the results have been otherwise. It was only in England that the capital was at hand to build the large screw steamers which alone could profitably use the canal: and from the start three-fourths of the vessels using the canal were British. Shorter voyages and punctuality of arrivals make it possible for local dealers both in England and on the Continent to order directly from the East, and the change in the method of this business rendered useless to a large extent the immense warehouses at London, Liverpool and other English ports. The termination of the warehouse distribution system of England was one of the forces which led to the disappearance of the class of merchant princes, who had hitherto monopolized the Eastern trade. The system of bank discounts and commercial loans, by enabling men of ability to secure capital at low rates of interest, also played a large part in driving out of trade the old houses doing business on their own capital, from which they expected large rates of interest. But as long as large stocks of goods had to be kept on hand for six months or more at a time, it was difficult for the new business man to get the credit that would enable him to supplant the old established houses in the Eastern trade. When, however, the new route by the Suez Canal by bringing steamers into use enabled a cargo to be sold and delivered within a month after the order had been sent, the advantages on the side of the man working with borrowed capital were decisive. The confusion and disturbances in the business world were so great that the London Economist has said that they constituted one great general cause for the universal, commercial and industrial depression and disturbance of 1873.