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Paid Houthi attacks In the Red Sea, shipping companies have to change their routes, and an increasing number of ships are avoiding them Suez CanalThis will negatively affect the Egyptian economy in crisis over time, according to experts.
According to International Monetary Fund data, the movement of goods transport through the Suez Canal decreased by 35% last week compared to the same period in 2023.
During the same period, the Fund recorded an increase in the transport of goods via the Cape of Good Hope route in Africa by 67.5%.
The Houthi group says it is targeting Israel and ships associated with it to pressure it to stop the attack on Gaza strip.
Since November 18, 2023, 25 commercial ships sailing in the southern Red Sea and the Gulf of Aden have been attacked.
The attacks endanger the corridor through which up to 12% of global trade is transported, prompting the United States to form a multinational naval force to protect ships from these attacks.
The Suez Canal Authority said in a statement last December, “55 ships have been diverted to transit through the Cape of Good Hope route since November 19.”
The giant Danish shipping company, Maersk, announced last Friday that it will divert all of its ships to circle around Africa instead of using the Red Sea and the Suez Canal in the “foreseeable future.”
Increased cost of risk
The deployment of Western battleships in the Red Sea to protect shipping traffic did not seem to reassure the sector.
Director of the Higher Institute of Maritime Trade in France, Paul Touré, believes that shipping companies are willing to bear the cost of the longer route.
“It turns out that the two trips around Africa and through the Suez Canal cost approximately the same price,” Touré told Agence France-Presse, noting the high fuel costs on the longer route, and the high traffic fees in the Egyptian shipping lane.
The New York-based Soufan Center for Strategic Research published in a recent report that although “shipping prices have nearly tripled” since the start of the Houthi attacks, costs “are still much lower than they were during the Covid-19 pandemic period.”
According to experts, with the circumvention of the Cape of Good Hope, the duration of the ship’s journey between Asia and Europe increases between 10 and 20 days, more than the time required if they cross the Suez Canal, which connects the Mediterranean and Red Seas, and through which 12% of international maritime trade passes.
A source of foreign exchange
In the short term, Egyptian sources say that its revenues from the canal have not been affected, but what if the crisis lasts for a long time?
An Egyptian shipping source considered that “changing the route of some lines is a temporary crisis whose impact will become more apparent the longer the period lasts,” noting that “the canal’s revenues increased for the month of December, an increase of $12 million over the same month in 2022, to record $748.9 million despite From Houthi attacks.
The Alternative Policy Solutions Project of the American University in Cairo published in a report this week that “the Egyptian economy is expected to be one of the most affected by the slowdown in maritime traffic in Bab al-Mandab.”
The canal’s revenues constitute one of the five most prominent sources of foreign exchange in Egypt, including exports, tourism, and remittances from Egyptians working abroad.
Remittances from Egyptians abroad, in turn, recorded a decline during the first quarter of the fiscal year 2023-2024 by about 30%, recording about $4.5 billion, compared to the same period of the previous fiscal year.
In the fiscal year 2022-2023, the channel achieved financial revenues amounting to $9.4 billion, which is the highest annual revenue recorded, and an increase of about 35% over the previous year, according to what the authority announced last June.
The disturbance in navigation in the Red Sea coincides with one of the worst economic crises in the history of Egypt, after the annual inflation rate recorded a record level that currently stands at 35.2%, driven by the decline in the value of the local currency and the shortage of foreign currency in light of the import of the bulk of food, in addition to the increasing volume of external debt. Which amounts to $164.7 billion.
The European Bank for Reconstruction and Development expects Egypt to spend 70% of its revenues in 2024 on paying debt interest.
Touré believes that “Suez Canal revenues help maintain the lid of the social pressure cooker” in Egypt, a country whose population exceeds 105 million, at least a third of whom are below the poverty line.
Regarding the channel’s impact on the current crisis, he says, “One month may be acceptable… but two months is worrying.”
