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An economic bedrock -

Completed in 1869, the Suez Canal is one of the world’s most important bodies of water, acting as a portal between East and West.

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An economic bedrock -

The canal's strategic location connects the waters of Europe to the Arabian Sea, the Indian Ocean, and the countries of the Asia-Pacific.

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A precious waterway -

Built over the course of a decade in the mid-19th century, the precious 120-mile waterway of the Suez Canal was constructed to slither down Egypt and into the Red Sea.

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Narrow land mass -

There are no alternatives to the Suez Canal in the region. The narrow Egyptian land mass where it's located is the only one that can support an artificial waterway.

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Time saved -

Today, a ship's journey from Italy to India covers around 4,400 nautical miles. Traveling at a speed of 20 knots, the route would have a 9-day duration. This is much shorter than the alternative shipping route available.

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Sea shipping -

Around 80% of the world's volume of global trade is transported by sea, with around 12% of the world's shipping volume passing through the Suez. 

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Sea shipping -

The canal is a significant route for the transit of energy, commodities, consumer goods, and components from Asia and the Middle East into Europe.

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A regional hub -

It is a key regional hub for shipping oil and other hydrocarbons, enabling the transfer of an estimated 7-10% of the world’s oil and 8% of liquefied natural gas.

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The effects of disruption -

Countries in Asia and Europe are most affected by any disruption that occurs on the Suez Canal. However, the effects of blocked traffic on the Suez are felt worldwide.

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Widening programme -

In 2014 an ambitious canal-widening program was undertaken at a cost of approximately US$8.2 billion. It aimed to increase the daily capacity of vessels using the Suez from 49 to 97 by 2023.

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The effects of disruption -

In 2021, a 1,300-foot-long container ship called the Ever Given became lodged sideways in the Suez Canal, causing trade chaos.

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The effects of disruption -

The ship was longer than the Eiffel Tower is tall, blocking all other ships from passing. Attempts to remove it were slow. 

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Obstruction -

For six days, the obstruction cut off traffic in the canal. By the time it was moved, 639 ships were waiting to pass through. 

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Highlighted importance -

The incident highlighted the importance of the Suez Canal, which sees an estimated US$400 million worth of goods pass through it each and every day.

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Hub-and-spoke system -

In general, a large percentage of international trade (80%) doesn't actually move directly from its point of origin to its final destination. 

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Hub-and-spoke system -

Many goods are routed via another country's ports. Disruptions to one nucleus in the chain can have reverberating effects throughout the network of transport.

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Linking continents -

Without the Suez Canal, shipments traveling between Europe and the Asia-Pacific region would have to traverse the entire continent of Africa.

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Linking continents -

The Cape Route lost much importance once the Suez Canal opened. Today, almost all ships pass through the Suez Canal.

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Extra time and expense -

The Suez Canal reduces the naval journey by two weeks. Additionally, the crossing via the Cape Route is subject to more unpredictable conditions. Harsh weather, strong winds, and currents make it much more difficult to navigate.

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Traffic disruption -

However, the Cape Route is an alternative course in case the traffic in the canal is disrupted for any reason, or if ships do not want to pay fees for crossing the Suez Canal.

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Longer routes -

Longer shipping routes burn more fuel, raising the (already high) cost of maritime transit. One IMF study from 2022 found shipping costs to be a driver of inflation around the world.

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Inflation driver -

When freight rates double, inflation picks up by around 0.7 percentage points. The impact for consumers builds up gradually, hitting a peak after 12 months.

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Inflation driver -

However, for producers, increased prices are passed on quickly. Within two months of costs going up, imported goods at the dock are priced higher.

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Reliance on imports -

Many producers rely on imported goods to manufacture their products. Producers in countries that rely more heavily on importing (landlocked and island states) are hit hardest.

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Surrounding seas -

Given the importance of the Suez Canal to world trade, disturbances in the sea routes that are linked by it can also cause complications.

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Houthi rebels -

In November 2023, Houthi rebels seized a vessel in a piracy attack in the Red Sea. The Yemeni rebel group continued targeting ships in December 2023, claiming to act in retaliation for Israel's actions in Gaza.

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The Red Sea -

Maersk, Hapag-Lloyd, CMA CGM Group, and Evergreen announced they would pause shipping through the Red Sea amid fears of Houthi attacks that same month.

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The Red Sea -

The oil giant BP also announced it would do the same, leading to a surge in oil and gas prices. Continued attacks could force more ships to take the longer Cape Route, causing insurance costs to rocket.

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A critical maritime passage, with economic implications -

The Suez Canal is a critical maritime passage. If its use becomes blocked due to issues in the surrounding seas, it could have a big impact on global supply chains, and a domino effect of economic implications over time.

Sources: (CNN) (Quartz) (New Zealand Ministry of Foreign Affairs and Trade) (International Monetary Fund) (Marine Insight) (Politico)

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