Hopes for Suez Canal Revival Dashed

Shippers are once again avoiding the Suez Canal as the US and Israel are locked in a war with Iran, dashing hopes of an imminent revival for the key global trade conduit that’s a pillar of the Egyptian economy.

A.P. Moller-Maersk A/S, Hapag-Lloyd AG and France’s CMA CGM SA have all said they’re suspending passage or routing services away from Suez, reflecting fears that Iranian-backed Yemeni rebels might resume attacks on vessels in the southern Red Sea.

Egyptian authorities had been cautiously eyeing a revival this year after Maersk and other carriers had earlier signaled they’d fully return to the Suez shortcut between Asia and Europe they’ve mostly avoided since late 2023. 

Cairo estimates it lost some $9 billion in potential transit fees from the disruption caused by the Houthis, who targeted international ships to pressure Israel over the war in Gaza.

The US-Israeli attacks on Iran “and subsequent retaliatory action will see the further weaponization of trade and shatter hopes of a large-scale return of container shipping to the Red Sea in 2026,” said Peter Sand, chief analyst with Xeneta, an Oslo-based digital freight platform.

The development points to the potent knock-on effects of the latest Middle Eastern conflict on economies far from the heart of the fray. Import-reliant Egypt, the region’s most populous nation, has been especially vulnerable to such turmoil — a factor that helped it secure a $57 billion global bailout in early 2024 as the Gaza war raged.

Yemen’s Houthi militants stopped hitting ships after a ceasefire between Israel and Hamas in Gaza in October. Hours after the US and Israel launched attacks on Iran on Saturday, the Associated Press cited two rebel officials as saying the group would resume attacks. There’s no sign yet they’ve carried out the threat.

As the conflict has widened with Iranian missile and drone attacks across the Gulf, Egypt’s stock index has dipped and its pound fallen to the weakest since July. An importer of Israeli natural gas, the country is also moving to secure alternative energy shipments after the Jewish state temporarily closed some fields. 

The Suez Canal has historically been among Egypt’s five biggest sources of foreign exchange, along with tourism and overseas worker remittances. Central bank data show revenue surged to a record of about $9.6 billion in 2023, only to drop to around $3.6 billion the following year as international shipping stayed away.

With canal income already “depressed” for the past couple of years, there’s unlikely to be a significant macro impact from the latest announcements, according to Mohamed Abu Basha, head of macroeconomic analysis at investment bank EFG Hermes.

“Income from remittances, non-oil exports, tourism and foreign-direct investment has been well-compensating,” he said. While revenue had begun to recover in recent months, it was “doing so from a very low base.”

Bank of America said Monday that Egypt was “vulnerable due to crowded positioning and oil exposure, but Gulf support could provide a buffer.” While “the external-financing picture remains tight,” the International Monetary Fund’s recent granting of some $2.3 billion in loans gives “near-term buffers,” it said in a note.

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