Source: AFP
Attacks by Yemen’s Houthi rebels in the Red Sea have forced shipping companies to avoid the Suez Canal – a key source of revenue for Egypt as it battles a deep financial crisis.
International Monetary Fund data shows 35% less cargo moved through the Suez Canal in the first week of 2024 compared to the same period last year.
Analysts say the economic impact, while limited for now, will become painful if Houthi attacks continue to restrict traffic through the main sea artery linking Europe and Asia.
The man-made waterway — which officially opened in 1869 — is vital to Egypt, earning $9.4 billion in transit fees in the 2022/23 fiscal year.
Since the Iranian-backed Houthis began attacking ships in response to Israel’s bombardment of the Gaza Strip, companies have opted for the much longer route around Africa’s Cape of Good Hope.
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The route that circumnavigated Africa saw a 67.5 percent jump in cargo compared to the same period last year, the IMF’s PortWatch said.
Citing the highly volatile situation, which has driven up insurance costs, Danish shipping giant Maersk said on Friday it would divert all ships away from the Red Sea for the “foreseeable future”.
Since November 18, 25 merchant ships have been attacked in the southern Red Sea and Gulf of Aden, according to the US military.
Source: AFP
The Houthis — part of the Iran-aligned “axis of resistance” against Israel — say the strikes are being carried out in solidarity with the Palestinians.
Israel bombed the Hamas-run area for three months in a campaign to destroy the militant group after the October 7 attack.
US and UK forces shot down more than 20 drones and missiles over the Red Sea launched by the Houthis, in what London described on Wednesday as the Iran-backed rebels’ “biggest offensive”.
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Vital shipping lane
Yemeni rebels say they are targeting commercial ships linked to Israel passing through the vital shipping lane in a show of solidarity with the Palestinians.
The narrow strip of sea — stretching from the Bab al-Madeb Strait in the south to Egypt’s Suez Canal in the north — provides passage for 12 percent of world trade, according to the International Chamber of Shipping.
We are concerned that even as the US launched a naval coalition that now patrols the Red Sea, shipping companies are willing to bear the cost of the longer route, according to Paul Tourret, head of the maritime trade institute ISEMAR.
He said the additional fuel costs were offset by the savings in heavy tolls for using the Egyptian waterway, so that going around Africa, although more time-consuming, “ends up at the same price”.
The New York-based Soufan Center think tank argued that while “fares have almost tripled” since the holiday began, costs remain lower than during the Covid-19 pandemic.
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Source: AFP
However, the impact of the crisis “will increase if it lasts,” a port official told AFP, speaking on condition of anonymity.
Revenue from the Suez Canal is particularly vital for Egypt amid an economic crisis in which the local currency has lost half its value since March 2022, while inflation is above 35%.
Egypt’s economy also relies heavily on tourism and remittances from Egyptian workers abroad, which fell nearly 30 percent in July-September 2023 year-on-year, according to the central bank.
In the midst of recession, the Arab world’s most populous country has relied heavily on Suez Canal income for both its military and welfare spending.
At least two-thirds of the Egyptian population live above or below the poverty line.
“The revenue from the channel helps keep the lid on the social media pressure cooker,” Tourre said. “They go directly to the state, which reinvests them in the military and welfare.”
The recent decline in shipping traffic, he said, had caused “a real shortfall. One month could be fine, but two months will be a cause for concern.”
Source: AFP