Earlier this week, a 400 meter-long container ship halted transit in both directions on one of the world’s major seaborne trade chokepoints after running aground across a single-lane stretch of the canal. Getting the vessel out of the way may take days if not weeks, according to maritime experts.
So far, the blockage hasn’t caused a significant disruption in oil markets. While the inventory overhang that built up last year is gradually being worked off, crude and oil product stocks globally remain at comfortable levels. And some of the world’s largest and newest tankers are anyway too big to use the canal.
The Suez Canal was inaugurated in 1869, at the dawn of the oil industry. Over time, oil became one of the most important commodities to transit the channel. For modern vessels, the canal cuts travel time between North America or Europe and the Middle East or Asia by almost two weeks by avoiding the much longer route around the Cap of Good Hope, at the tip of the African continent.
But the closure underscores recent changes in global oil trade. While the common perception is that oil transiting through the canal is largely made up of crude from Middle Eastern headed to Europe or North America, in reality the majority of the oil traveling through the canal is now headed in the opposite direction to feed Asia’s burgeoning economies.
While the canal can accommodate all traditional clean oil product tanker sizes, very large crude carriers (VLCC) can only transit the canal when loaded below their 250,000 tonnes capacity. Suezmax crude tankers, able to carry up to 200,000 tonnes of crude oil, are specifically designed to navigate through the canal. But in recent years, the growing fleet of ultra large crude carriers (ULCC), with deadweight ranging between 300,000 and 500,000 tonnes have reshaped crude oil routes as they can only load and offload at specially adapted ports and cannot transit fully laden through three of the world’s major chokepoints – the Strait of Malacca, the Suez Canal and the Panama Canal.
Two pipelines connecting the Red Sea to the Mediterranean that offer an alternative to the canal, the 2.5 million barrels a day (mb/d) Sumed pipeline runs through Egypt, and the 600,000 barrels a day Europe-Asia pipeline, through Israel. Both pipelines have generally operated in the west/northbound mode and have limited or untested capacity in the reverse direction.