Suez canal –a strong pillar of economic growth

Suez canal –a strong pillar of economic growth

23- 29 March 2021 is a date netizens/Twitterati would never forget. This 6-day period saw a massive container ship getting stuck sideways in Egypt’s Suez Canal, blocking one of the busiest waterways of the world playing havoc with the global trade. The incident that began after strong winds blasted through the region, kicking up sands drew public attention launching a tsunami of memes on social media.
So it’s time we took a quick look at the history and significance of the Suez Canal and the reason behind its economic significance.
The 120 miles long artificial Egyptian waterway has been a potential point creating conflicts among Egypt’s neighbors (striving for dominance) ever since the year 1869. The canal connects Port Said to the Indian Ocean, via the south Egyptian city of Suez. The passage is said to enable direct shipping between Europe and Asia, eliminating the need to circumnavigate Africa, cutting voyage time by days or weeks.
The time saved by the passage can never be overlooked. A ship traveling from a port in Italy at a speed of 20 knots, would take about nine days to reach India. At the same time, it would cover around 4,400 nautical miles if it passed through the Suez Canal. The second-quickest path to complete that same journey would be via the Cape of Good Hope and around Africa. Traveling at the same speed, you can traverse the route in three weeks.
The canal was nationalized way back in 1956 by Egypt’s anti-colonial President Gamal Abdel Nasser. This move sparked a crisis that ended after the US intervention against invasion, resulting in the canal’s closure for a year. A decade later, in 1967 Egypt had to forcefully close Suez for 8 years owing to the Israeli Arab war. Today, the power to operate the canal rests with the state-owned Suez Canal Authority and is a major revenue-generating source. According to, the revenue generated in the year 2020 accounts for $5.61 billion. Moreover, an $8 billion expansion of the canal was launched in 2015 to increase ship traffic and more than doubling revenue.
Let us now delve into the origins of this canal. The idea of building it dates back to the days of yore, but this dream project became a reality only in the mid 19 century when the Egyptian Ottoman Viceroy Mr. Said Pasha granted a concession to a French company to build the canal. The project which took 10 years to complete cost 100 million dollars, which was double the initial estimate.
Built under the supervision of Ferdinand de Lesseps, the economic and strategic importance of the canal was realized way back in the 16th century, when Egyptian King Neclio II tried to construct the canal for providing the shortest maritime route between the Atlantic Ocean and the Indian Ocean. This manmade path separates the majority of Egypt from the Sinai Peninsula. The canal holds immense significance in the world trade that the world powers have been in continuous conflict, ever since its completion in 1869.
This takes us to the question Why Suez Canal is considered to be economically crucial? This is a question that arouses curiosity in all our minds. Let’s have a look at the reasons for the same.
• The first and foremost reason stems from its location. The first and foremost reason stems from its location. Suez Canal is the only location that directly connects the waters of Europe with the Arabian Sea, the Indian Ocean, and the countries of the Asia-Pacific. The location makes it a key link for shipping crude oil and other hydrocarbons from countries such as Saudi Arabia to Europe and North America. According to the article ‘Why a Canal Built in 1869 is More Important than Ever’ by Robert Tuttle, 54.1 million tons of cereals passed through the canal. In the year 2019, 53.5 million tons of ores and metals and 35.4 million tons of coal and coke passed through it.
• It is the world’s longest canal without any locks, connecting water bodies at differing altitudes. It enables much more direct shipping between Europe and Asia and by the year 1955, approximately 2/3rd of Europe’s oil passed through the canal. Without Suez, a supertanker carrying Mideast crude oil to Europe would have had to travel an extra 6,000 miles around Africa’s Cape of Good Hope, adding an amount of close to $300,000 in the fuel cost. The absence of locks makes it suitable to handle even aircraft carriers.
• Today, about 7.5 % of the world’s sea trade is carried on via the canal and is known for being the most heavily used shipping lanes. Almost every good imaginable makes its way through the canal.
What’s more? There’s no alternative to Suez Canal. No landmasses would have been narrow enough to support an artificial waterway that links Europe with the Asia-Pacific were it not for the Red Sea stretching up above the Horn of Africa along with Sudan and Egypt. The canal’s strategically important position now indicates that it hosts nearly 19,000 vessels each year, as per Lloyd’s List, a shipping industry journal.

Idea & Concept : Suvin David, Research Analyst Cum Faculty Hedge School of Applied Economics

Content Development: Aswathi Satish, Niyog Consultancy Services Pvt. Ltd.


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