OPINION: The new Suez crisis — a jammed container ship rather than the original and infamous armed conflict — has taught the world another serious lesson about extended supply chains.
Globalisation offers the energy, business and consumer sectors huge advantages over narrow nationalism, but comes with its own costs attached.
The grounding of the Ever Given container ship — which has since been refloated — created a 300-vessel traffic jam and forced one of the world’s busiest trading arteries to close.
The price of oil moved swiftly upwards as tankers as well as other commercial vessels were forced to a standstill.
Global pinch points
The shock underlines the way the Suez Canal has been largely taken for granted as an international pathway.
And yet it is only two months ago that the price of gas soared as liquefied natural gas carriers were delayed for two weeks by bottlenecks in the Panama Canal.
The Strait of Hormuz between the Persian Gulf and the Gulf of Oman is also vulnerable to ship attacks, while traffic in the Malacca Straits off Malaysia has been targeted in the past by pirates.
It is estimated that the total value of trade through the Suez Canal is worth close to $10 billion a day.
This raises questions over the vulnerability of extended international supply chains and just-in-time delivery systems.
History of crisis in the Suez
Meanwhile, the Covid-19 pandemic has made political and business leaders aware of the threats to local and national resilience when the fabled black swan event takes place.
The latest Suez crisis was certainly a far cry from 1956, when Egyptian president Gamal Abdel Nasser nationalised the waterway leading to a military invasion by the UK and France, who once held joint ownership of it.
Pressure from the US and what was then the USSR forced the invaders to pull out in what was seen as a potent symbol of waning British colonial power.
But the 193-kilometre canal remains a vital piece of global infrastructure for very large crude carriers laden with Middle East oil making their way to the Mediterranean Sea and Europe.
The alternative route via the Cape of Good Hope adds a huge number of sea miles and therefore time and money.
Oil price effect
Around 1.7 million barrels per day of crude traverses the Suez Canal, with an additional 1.5 million bpd of refined oil products, according to commodity-tracking company Kpler.
Brent blend reached highs of nearly $65 per barrel at the end of last week as traders expressed concerns about the pace of efforts to dislodge the Ever Given.
There were also fears to supplies driven by further uncertainty in the region as Houthi rebels in Yemen claimed to have once again launched attacks on Saudi Arabian oil facilities.
Upward pressure on oil prices has also come from expectations that Opec+ ministers will keep production levels restrained.
The cartel is scheduled to meet on 1 April to decide on future strategy. Opec sources were preaching caution ahead of the online event.
The price of crude had fallen early this week as the bow of the Suez ship began to move and the Ever Given was successfully re-floated on Monday.
But the accident has made the energy sector once again aware it needs to build in flexibility to deal with the unexpected.
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(This is an Upstream opinion article.)