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January 29, 2011

Suez Canal Oil Choke Point

The Suez Canal crosses the Suez isthmusImage via Wikipedia
Why the recent developments in Egypt can send the world in recession or worst.
Egypt can seem a Middle East or North African problem catching our headlines for few days and then disappearing but in reality depending on how this revolution will develop can practically bring the entire world in recession.
Why Egypt is vital to the global economy is due to the Suez Canal, even if not that important today as it used to be it still represents one of the main oil choke-points in the world.
Petroleum (both crude oil and refined products) accounted for 16 percent of Suez cargos, measured by cargo tonnage, in 2009. An estimated 1.0 million bbl/d of crude oil and refined petroleum products flowed northbound through the Suez Canal to the Mediterranean Sea in 2009, while 0.8 million bbl/d travelled southbound into the Red Sea.
With only 1,000 feet at its narrowest point, the Canal is unable to handle the VLCC (Very Large Crude Carriers) and ULCC (Ultra Large Crude Carriers) class crude oil tankers.

The 200-mile long SUMED Pipeline, or Suez-Mediterranean Pipeline provides an alternative to the Suez Canal for those cargos too large to transit the Canal. The pipeline moves crude oil northbound from the Red Sea to the Mediterranean Sea, and is owned by Arab Petroleum Pipeline Co., a joint venture between the Egyptian General Petroleum Corporation (EGPC), Saudi Aramco, Abu Dhabi’s ADNOC, and Kuwaiti companies.

Closure of the Suez Canal and the SUMED Pipeline would divert tankers around the southern tip of Africa, the Cape of Good Hope, adding 6,000 miles to transit.

Even a temporary blockade of the flow of oil would cause oil prices to spiral upwards, yesterday as news from Egypt were coming through the price of oil went above $100 immediately. A longer disruption could case an already weak economy to down spiral in recession. 
Currently the most worrisome scenario is in Europe since it is more affected by a possible blockade of the Suez Canal.
The question is, if this happen what Europe will do about it, it will start a military intervention as in the Suez Crisis in 1956 to re-establish transit and vital energy supplies, any alternative route or source is not viable at the moment in the short and medium term and waiting too much to re-establish supplies would cause devastating damage to an already feeble economy. 

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