A 400-meter-long container ship is blocking Egypt’s Suez Canal from side to side, causing massive congestion at the site and delays that could last for days. More than 50 cargo ships cross the Suez Canal daily, accounting for 12% of international trade.
The container ship, “The Ever Given,” has literally wedged its bow into one end of the Canal, while its stern almost touches the other end, completely blocking the passage of other vessels.
According to oil and gas analysis platform Vortexa, “any delay leading to re-routing will add 15 days to a voyage from the Middle East to Europe.”
The ship is owned by the Taiwanese company “Evergreen Group” and is one of the largest vessels in the world, its length is comparable to the height of the Empire State Building and can carry more than 20,000 containers.
Egyptian authorities are working to turn the ship around as soon as possible, but even if the vessel is moved, the subsequent traffic could take days, putting further stress on global supply chains.
Egypt recently made a Canal extension whose investment exceeded $8 billion, with the intention of increasing traffic. Between 2015 and 2020, more than 90,000 ships have crossed through, carrying more than 5.5 billion tons of cargo.
In that sense, Egypt annually receives more than $5.6 billion thanks to the traffic generated. However, this income was diminished in 2020 due to the reduction of maritime traffic as a result of restrictions imposed to contain Covid-19.
What does the closure of the Suez Canal mean for the oil price?
With the grounding of the vessel, the price of oil has soared on all commodity exchanges. On the New York Mercantile Exchange, a barrel of crude oil rose $2.74, representing a 4.7% increase, bringing the price per barrel to $60.50.
The barrel of Brent crude oil rose $2.79, equivalent to 4.6 %, and settled at $63.58 on the European futures exchange. As for the WTI crude oil barrel, there were no major variations in its price due to the event.
The Ever Given’s jamming may delay the delivery of up to 13 million barrels of oil on more than 10 cargo ships that are waiting for the problem to be solved. About 9 % of the oil transported by sea passes through the Suez Canal and in a year, more than 120 million tons of oil can move through the Suez Canal.
The three main exporters of crude oil that send their barrels through the Suez Canal are Russia with just over 546,000 barrels per day, Saudi Arabia with approximately 410,000 barrels, and Iraq with 400,000 barrels.
More than 50% of the crude oil that flows through the canal goes from the Persian Gulf countries to Europe and the United States, with Saudi Arabia, Iraq, and Iran accounting for 85% of the exports that flow north through the canal.
Southbound crude oil exports go mainly to East Asian countries, with Singapore, China, India and South Korea being the main oil receivers. The countries that essentially export crude oil traveling south of the Canal are Russia, the Netherlands, and Libya.
Against this backdrop, analyst Tariq Zahir of Tyche Capital Advisors, said that “The Suez Canal is not a long-term problem”. Furthermore, Zahir pointed out the biggest danger for the oil industry at the moment is the quarantines that are being re-adopted in Europe and risk being replicated in the United States.