Red Sea: Egypt weakened by strategy of avoiding Suez Canal by shipping companies

It is a real barometer of international relations, or, conversely, smoldering armed conflicts. Inaugurated in 1869 by Empress Eugénie after the work of the Frenchman Ferdinand de Lesseps, the Suez Canal is a strategic passage between the Red Sea and the Mediterranean Sea, which is now used by around fifty ships a day on average (compared to 3 l a year after its opening). ), or 20,000 ships per year. More importantly, it enables the delivery of resources to countries (gas, oil, food, etc.) and thus influences conflict resolution.

While shortening the Bombay-Genoa distance by 58%, the Suez Canal has primarily become Egypt’s third source of foreign currency, after tourism and remittances made by emigrants. Nationalized by Colonel Nasser in 1956, today around 10% of the world’s maritime trade passes through it.

Therefore, the Houthi rebels, supporters of Hamas against Israel, want to attack this 195 km passage in order to destabilize Israel’s allies. Faced with this threat, the United States announced on December 19 that it wanted to create a new multinational maritime defense force. France, which is present in the area with the multipurpose frigate (Fremm) Languedoc, which shot down three drones coming from Yemen in December, welcomed the announcement.

Unexpected for Egypt

Egypt, which faces a stagnant economy, is the first to be affected if maritime trade is halted. For the 2022-2023 fiscal year, there will be channel Suez brought the Egyptian state around 8.6 billion euros, a new record.

This represents a “35% increase” compared to 6.4 billion euros recorded in the previous fiscal year (July-June), the president of the office said channel Suez (SCA), Usama Rabia. This increase is explained by the increase in traffic due to the new section dug in 2014 and 2015, which now makes it easier for the convoys to pass and reduces the passage time of the ships.

Egyptian President Abdel Fattah al-Sissi, re-elected on December 18 for his third term, plans to expand the canal further to avoid any accident causing its closure. To date, the ship’s limit is set at up to 240,000 tons and a draft of 66 feet (20.1 meters).

The closure of the Suez Canal is also an economic disaster for Egypt. In 2021, when the ship Ever Given got stuck in the canal blocking the passage, Egypt lost 12 to 15 million dollars per day of closure. Insurers then estimated losses in the billions of dollars a day for global maritime trade.

On site the consequences are immediate because channel with its seven subsidiaries, it employs around 15,000 people and with its schools and leisure centers creates a world of its own. The windfall for the country is such that Egypt announces an increase in transit costs every year (+10% to 15% from January 2023).

Egypt’s economy in the middle of a crisis

This income is all the more important for Egypt as the state is drowning in debt. For several months now, inflation has continued to rise, exacerbated by the devaluation of the currency by almost 50%, in exchange for this financial aid.

In August, inflation reached +39.7%, the highest level on record in this country, whose economic crisis continues to worsen because the reforms demanded by its creditors are so slow to come.

The government, on the other hand, finances pharaonic projects. Between President Abdel Fattah al-Sissi’s mega-projects, subsidies for a range of products and a monetary policy to support the Egyptian pound, its external debt has exploded. It reaches 90% of GDP. Egypt has not hesitated to draw additional financial resources from the canal, while the government has to negotiate with the International Monetary Fund (IMF).

Cairo received its fourth IMF loan since 2017 in December, but the $3 billion to be disbursed over about four years is no small feat, with debt service alone for 2022-2023 amounting to $42 billion.

According to Moody’s, the country is one of the five most at risk of defaulting on foreign debt.

Even worse, 71.5 million Egyptians are still dependent on a public food subsidy program that includes bread, but also rice, sugar and even pasta. In one year, food prices rose by 71.9%, transport by 15.2% and clothing by 23.6%.

As a result, 60% of the population lives below or just above the poverty line. The country of 105 million people, the world’s biggest importer of wheat, is bearing the brunt of the war between Ukraine and Russia, its two main suppliers.

The dollar’s sharp rise against the currency directly affects households, as the vast majority of goods imported into Egypt are denominated in dollars.

ZOOM: Suez Canal Crisis 67 years ago

– July 26, 1956 : Egyptian President Gamal Abdel Nasser announces the nationalization of the Suez Canal Company after the Anglo-Americans refused to finance the construction of the Aswan Dam.

– 27: France and the United Kingdom, the company’s major shareholders, freeze Egyptian assets.

– August 1: US Secretary of State John Foster Dulles leaves for London for talks with French and British authorities.

Dulles proposes an international body responsible for the control and management of the canal.

– 16-23: London conference bringing together the main users of the canal in the absence of the Egyptians: 18 of the 22 powers join the Dulles plan.

– September 9: Nasser rejects the plan.

– 19-21: Conference “18” in London to approve the creation of the Association of Canal Users, proposed by Paris and London.

– October 1: Third London Conference: The Channel Users Club is formed.

– 13: The UN Security Council defines six principles for the international management of the canal.

– 24th: France, the United Kingdom and Israel sign a secret agreement in Sèvres (a suburb of Paris) aimed at recapturing the Suez Canal.

– 29th: Ben-Gurion’s government begins Operation “Kadesh”: Israeli troops cross the Egyptian border.

– 30th: Paris and London issue a twelve-hour ultimatum to the warring parties, ordering them to withdraw their troops from the banks of the Channel or Franco-British forces would take up positions in the area.

– 31: Nasser rejects the ultimatum and breaks off diplomatic relations with London and Paris. Israel accepts it.

Franco-British forces bomb the main airport and partially destroy the Egyptian air force.

– November 1: Israeli forces occupy Gaza (under Egyptian supervision) and the Sinai desert.

– 2: Adoption of a US resolution at the UN calling for a ceasefire.

– 3: Egypt blocks the canal by sinking ships.

– 5: French and British paratroopers drop on Port Said (Operation “Musketeer”).

An ultimatum from Moscow, calling on the three countries to halt their offensive, half-heartedly threatens to use nuclear weapons.

– 6: Landing of the Allies, who take hold on each side of the channel, the French at Port-Fouad, the British at Port-Saïd. They begin their advance towards Ismailia (80 km to the south).

– 6th: London gives in to US President Eisenhower who threatens to collapse the pound sterling and declares a midnight truce followed shortly by Paris.

– 11: Nasser receives an intervention by the United Nations Emergency Response Force (FUN), the first blue helmets that begin to deploy on the 15th.

– December 22: Departure of the last British and French troops.

Israel withdraws from Gaza and Sinai in March 1957.

– March 29, 1957: Reopening of the canal for navigation.

– April 13, 1958: With the Rome Agreement, Cairo agrees to pay 28 million Egyptian pounds to the shareholders of the Suez Canal Company.

(With AFP)