Political violence in Egypt has the world anxious about the country‚Äôs future, but few businesses are concerned about the Suez Canal, the 120 mile passage between the Red Sea and the Mediterranean.
Lloyds of London, which insures ships transiting the canal, says¬†it is not worried¬†about safety or operation, although maritime insurer Skuld is warning ship‚Äôs crews¬†to be cautious, especially if they go ashore.
That‚Äôs not to say there are no issues. The curfew instituted as part of the country‚Äôs emergency law has restricted port operations in the evening, and oil prices have risen slightly risen over concerns about delays in the canal to $110 a barrel, still below a winter peak of $118. ¬†About 3% of the world‚Äôs oil supply,¬†or 2.5 million barrels,¬†goes through the canal every day; about 8% of global trade transits the canal.
Insurers aren‚Äôt just confident because the canal is supposed to remain open in time of war. The Suez is just too important to Egypt‚Äôs economy for the military government‚Äîor any other that may come to power‚Äîto allow it to close. The military has made the canal‚Äôs security a top priority. Revenues from the canalcontributed $2.4 billion¬†to the country‚Äôs economy in the first half of this year, and typically provides about 10% of the country‚Äôs hard currency. Earlier this year, Egypt‚Äôs currency reserves fell below $10 billion.
While Egypt‚Äôs generals are basking in¬†donated Gulf oil billions¬†for now, the country still has a serious balance-of-payments problem that has exacerbated the economic difficulties and food shortages¬†that provide the misery¬†underlying the political clashes. Meanwhile, both the European Union and the United States are under increasing pressure to cut off their own aid to the country following¬†several days of massacres.
Could the canal be closed as a negotiating ploy to extract help from Western governments increasingly leery of Egypt‚Äôs military junta? Perhaps, but Egypt probably needs the canal revenues more than it needs Western aid, and for container ships, at least, a diversion around the Cape of Good Hope probablywouldn‚Äôt result in huge delays, just higher costs.