How the Suez Canal Blockage Impacted the World

Mar 30, 2021

The 400-meter-long Taiwan-based container ship blocking the Suez Canal was refloated on Monday, according to a tweet by a maritime services company, Inchcape.

The maritime crisis, which had been going on for six days at that point, added even more pressure and anxiety to an already strained global supply chain that has been impacted by the coronavirus pandemic. 


Since last week, the 200,000-ton vessel had been stuck in one of the busiest marine passages in the world. The incident sparked fears about tight supplies as well as rising oil and shipping prices. The vessel, called ‘Ever Given,’ ran aground during a sandstorm last Tuesday and became lodged sideways in the Suez Canal, preventing any other ships from being able to pass through. The Ever Given, which was bound for Panama, forced other ships carrying oil from countries like Russia, the US, and Oman to queue to enter and exit the canal. 


As a result, millions worth of crude oil, liquified natural gas (LNG), refined fuels, and containers full of goods had come to a standstill, reports RT. 


Who’s to blame?

Numerous tugboats were busy, working days on end attempting to free the vessel wedged in the Suez Canal through which roughly 50 ships a day passed in 2019.


The blockage is reported to have been caused by a sandstorm that occurred on Tuesday. A probe to determine whether any mechanical or human error occurred is set to commence once the vessel is afloat. However, questions have been raised about whether the canal authorities relayed the weather forecasts diligently. Although the strong winds were detected by the weather forecasts, mariners and canal authorities did not want to delay passage in the Suez Canal.


“If you delay this vessel at Suez anchorage, it means you are making the shipowner lose $60,000 per day or $3-4,000 per hour of delay,” said Sayegh, the Beirut agent for the shipping journal Lloyd’s.

This isn’t the first time a ship’s run aground in a canal. A Japanese ship became lodged in the Suez Canal in 2017 but was refloated within hours, and in 2016 the CSCL Indian Ocean became grounded near the German port of Hamburg for five days.


How did it end?

The effort to free one of the world’s largest container ships saw some progress over the weekend when over 20,000 tons of sand and mud were removed, loosening Ever Given’s bow and stern.

Engineers took advantage of the unusually high tide to dislodge the Ever Given, which was towed towards an anchor point at a lake further up on Monday. The same day, Osama Rabie, the chairman of SCA, gave a press conference saying:


“We will not allow it to leave before making sure that it is safe to sail, and also after conducting an investigation to find out the cause of the accident because this will entail compensation. The Canal, from its part, does not have any error.”


The ship was refloated at 3 pm Egypt Standard Time, and navigation in both directions of the Suez Canal resumed by 6 pm local time, said Rabie. There is a congestion of 422 ships that the SCA has to deal with, he added.


Who was impacted the most?

Based on 2018 data, the EIA (Energy Information Administration) estimated that around 1.1 million barrels per day of crude transited the canal. Another 1.3 million barrels per day of crude went via SUMED, and 2.6 million barrels per day in refined products crossed the canal. However, SUMED operations were not impacted by this accident, which is why it is improbable that we will see a rise in crude-tanker rates.


On the other hand, the ship’s owner, Japanese firm Shoei Kisen KK, and its insurers are likely to face claims from the SCA (Suez Canal Authorities) for revenue loss and from other ships whose voyages had been interrupted by the blockage.


“All roads lead back to the vessel,” said David Smith, head of marine at insurance broker McGill and Partners.


The state-controlled authority that operates the Suez Canal (SCA) announced that it is mulling some financial incentives for vessels affected by the blockage. The incident created a backlog of nearly 370 vessels, including 25 oil tankers, Osama Rabie, head of the SCA, told Al Arabiya News on Saturday. He did not provide any details regarding the initiative, but he did state that the blockage was costing the canal roughly $13-14 million daily.


One of the world’s largest container shipping companies, Maersk, said that dozens of its vessels had been disrupted by the blockage. The Danish company explained that three vessels were stuck in the canal while twenty-seven were awaiting entry into the passage, and two more were en route. 


How did the markets react?

Last week the price of commodities shot up 6%, with a high potential to rise even further. 

As news of Ever Given being afloat again made the headlines, oil prices slipped, raising hopes that opening the waterway would ease global supply chains.


Brent crude futures fluctuated Monday before trading 0.9% higher at $65.18 per barrel, while US crude traded up 0.7% at $61.42 per barrel around midday, according to CNBC.


On Tuesday, oil prices fell, and the focus turned on the OPEC+ meeting to be held this week. Brent crude was down 15 cents, or 0.2%, at $64.83 a barrel. US oil was off by 12 cents, or 0.2%, at $61.44 barrel, as reported by CNBC.