The Suez Canal Blockade and its effects on Asian markets

The blockage of the Suez Canal has been one of the most pivotal economic events of the year so far. While it is over now and the channel is running smoothly again, the incident shows a significant look into the canal's importance in the global economy - something which experts perhaps didn't rank as highly up until this point.

Between March 23 and 29, the Ever Giver, a container ship measuring 1,300 ft., tilted sideways and ultimately blocked other vessels' passage across the Suez Canal's entrance. The ship caused a blockade of another 200 vessels (all similar in size to the Ever Giver) at either end of the canal, leading to significant efforts from authorities working overtime to get it out.

Due to fast winds and high tides, the Ever Giver became wedged on the canal's east bank and was eventually diagonally lodged. The situation was comparable to that of a giant whale being nestled in a vat of sand just close to the ocean.

Shoei Kisen, the Japanese owner of the ship, made a public apology two days after the incident as the ship's blockade continued to block the passage of billions of dollars’ worth of goods across one of the world's most important trade routes.

According to reports, about a million barrels of oil, eight percent of the world's liquified natural gas, and 12 percent of the world's entire trade pass through the Suez Canal daily. That means that the blockade led to a loss of about $10 billion worth of goods daily and about $400 million in a single hour. With the Suez Canal being a critical trade route between the East and the West, that blockade could have had crippling global trade effects if it was not solved so quickly.

The Ever Giver is now free, and trade along the Suez Canal has resumed. However, there is a significant backlog of vehicles looking to pass through. The disruption level in this situation continued to rise every day over the week-long period as more vessels joined the queue. Experts now believe that this massive flooding could cause congestion at some seaports and further complicate supply chains that were still reeling from a shortage of containers.

Thus, assembly lines could be affected as ships will not be coming back for a long while.

Another area where trade loss could occur is via re-routing some ships having to go via the Cape of Good Hope in South Africa. These ships could be delayed by a further week on their way to getting to their final destination, adding to delivery lags and excess money spent on fuelling.

The disruption level in this situation continued to rise every day over the week-long period as more vessels joined the queue. Experts now believe that this massive flooding could cause congestion at some seaports and further complicate supply chains that were still reeling from a shortage of containers. 

Mohamad Ibrahim

All in all, the losses are rising. Allianz, one of the world's largest insurers, estimates that global trade in the coming weeks could see a 0.2 to 0.4 percent reduction in trade growth, costing anywhere between $6 billion and $12 billion.

With the Suez Canal being one of the most critical areas for transportation across the East, its blockade immediately had ripple effects across markets. Countries across the Middle Eastern and Asian region were immediately put on alert as several of them had to find ways to manage the block in supply that had resulted.

The Wall Street Journal reported that several suppliers across Asia and Europe immediately began scrambling for alternate shipping routes. Some even considered air freight.

However, no industry got the blockade's effects like the oil and gas sector. The Suez Canal transports about 5% to 10% of all seaborne oil. This means that the blockade led to a shortage of between 3 to 5 million oil barrels for every day the Ever Giver was unmoved. A lack of that magnitude sent the Brent Crude and West Texas Intermediary indices shooting up.

Shipments from the Middle East were also affected, with oil prices increasing due to oil shortages.

When the canal eventually got freed, reports confirmed a jump in shares across GCC markets. The Abu Dhabi Securities Exchange (ADX) gained 1.7 percent, while the Dubai Financial Market also rose by 2.1 percent on the day following the Ever Giver's release. It is worth noting that several other factors led to the jump in Middle East shares as well. These included gains in shares of firms like International Holdings, Abu Dhabi Aviation, and more.

The Middle East is currently in the process of reopening following shutdowns from the coronavirus. With the markets in need of a boost, the Suez Canal situation could prove to be the perfect propeller for a jump in shares across the board.

- Mohamad Ibrahim is Regional Director at Exness