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Notícias Internacionais / 26/03/2021

Ship stranded in the Suez Canal: why the incident could worsen global economic crisis

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Ship stranded in the Suez Canal: why the incident could worsen global economic crisis

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If the blockade caused by the Ever Given ship extends over time, there could be consequences around the world.

The Suez Canal, in Egypt, is one of the main sea crossings in the world for the transport of goods and raw materials.

Since Tuesday, the passage through the channel has been blocked by the freighter Ever Given, which ran aground due to a technical failure and raises concern around the world for blocking the passage of other ships.

"If the Suez Canal remains blocked for another 3 or 5 days, it will start to have very serious global ramifications," Niels Madsen, vice president of products and operations at Danish consultancy Sea-Intelligence, told Reuters.

But why is this important for trade around the world

1. A crucial link to unite East and West

The Suez Canal is a 193 km navigable canal located in Egypt that connects the Mediterranean Sea to the Red Sea.

Inaugurated in 1869, it is one of the main economic arteries in the world, since more than 12% of world trade passes through it, according to data the Suez Canal Authority.

Its value lies in the fact that it offers cargo ships a route between Asia, the Middle East and Europe without having to bypass the Cape of Good Hope, in the extreme south of Africa.

This allows ships to save almost 9,000 kilometers each way, reducing the distance by 43%, according to data the World Maritime Transport Council (WSC), an institution that represents the main shipping companies.

2. A daily value of more than R $ 50 billion

The line of ships waiting to cross the channel on Wednesday includes more than 40 cargo ships, transporting staple foods, grains and cereals to so-called "dry" products like cement, and 24 tankers, according to data Lloyd's List Intelligence consultancy.

There were also eight ships carrying cattle and a water truck, according to Bloomberg.

The Suez Canal is one of the so-called "bottlenecks" on the planet, as defined by the United States Energy Agency (EIA, for its acronym in English), "essential for global energy security" and in the supply of raw materials and merchandise.

In fact, almost 19,000 ships pass through the channel each year, transporting millions of tons of goods.

Lloyd's List estimates that the daily value of containers passing through the channel is US $ 9.5 billion (more than R $ 53 billion), of which about US $ 5 billion (R $ 28.2 billion) goes to the west and another US $ 4.5 billion (R $ 25.4 billion) to the east.

3. Vital for supply chains

The channel is vital to supply chains worldwide, analysts say, so blocking it can have significant consequences.

The first problem can be found in port congestion, says Lars Jensen, an analyst at consultancy Sea Intelligence.

"If we assume that the ships are full [...], that means [that are] 55 thousand TEU (containers) per day of cargo Asia to Europe [via channel]. The current forecast is that the channel will take about two days to unblock, which will cause a delay of 110 thousand TEU of cargo, which will cause a peak of loading in the main ports of Europe ", explains the consultant, in an analysis he published on the subject.

"In other words, it increases the risk that we will see congestion at European ports within a week," he predicts.

What can that mean? That the supply of "basically everything you see in stores" can be "affected", the consultant told NBC.

4. Impact on oil and other commodity prices

In the opinion of Salvatore R. Mercogliano, a specialist in maritime affairs and a professor of history at Campbell University in North Carolina (USA), the blockade may have "huge ramifications for world trade".

"Every day that the channel closes, container ships and oil tankers do not deliver food, fuel and manufactured products for Europe and no goods are exported Europe to the Far East ", he analyzes in a conversation with the BBC.

The Suez Canal is "particularly important as a means of transporting oil and liquefied natural gas, allowing remittances to reach Europe the Middle East," says Theo Leggett, BBC business correspondent.

In fact, 5,163 tankers passed through the channel last year, according to official channel data, moving nearly two million barrels of oil a day, estimates Lloyd's List Intelligence.

According to EIA data, total oil flows through the Suez Canal and the SUMED pipeline (built in the Gulf of Suez itself) accounted for about 9% of the total world oil traded by sea and 8% of liquefied natural gas.

Due to their importance and the uncertainties generated, world oil prices rose more than 6% on Wednesday after traffic was suspended on the canal, although they fell slightly again on Thursday.

The markets, therefore, still await the development of the events:

"Obviously, the longer this interruption lasts, the more likely it is that refiners and buyers will have to turn to the spot market to guarantee supplies else," says ING's research department.

Time will be the key to measuring impact over time, according to analysts.

"The effect is likely to be weak and transient. But if the blockade lasts more than a few days, it can impact the price and in a more lasting way," says Bjornar Tonhaugen, Rystad's cabinet, to the AFP agency.

What about the rest of the products and goods?

"There are millions of dollars worth of commodities on the other ships, and if the channel isn’t cleared quickly, they’ll be looking for other routes, which means more time, more fuel and more costs that can be passed on to consumers," said Ian Woods, maritime trade attorney at London firm Clyde & Co in an interview with NBC.

While analysts and markets eagerly observe the resolution of the incident, there are voices that are already warning of the lessons that can be learned it.

"It's a nightmare scenario," said the BBC's Leggett.

"The incident showed what can go wrong when the new generation of large ships, like Ever Given, has to go through narrow channels," he notes.

Although some parts of the canal were expanded as part of a major modernization program in the middle of the last decade, "it remains difficult to navigate," he says, and accidents may occur in the future with even more serious consequences.

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