Here’s How The Suez Canal Is Rebounding After Geopolitical Turmoil

January 29, 2025

 

As the fog of geopolitical uncertainty lifts, a historic artery of global trade is finding its rhythm again. The Suez Canal, the lifeblood of commerce between East and West, is eager to get back on course after a ceasefire agreement in Gaza.

After months of disruption, on January 21, Osama Rabie, chairman and managing director of the Suez Canal Authority (SCA), announced the resumption of major shipping lines transiting through the Suez Canal. He stated that the canal is ready to operate at full capacity as preparations are underway for the gradual return of global trade, following the restoration of security stability in the Red Sea and Bab al-Mandab regions.

Experts anticipate that traffic through the Suez Canal will normalize within weeks.

Abdel Qader Gaballa, head of the Suez and Red Sea Navigation Chamber, told local media that certain shipping lines could resume operations in the Red Sea within two to three weeks, provided the Gaza truce remains stable. This includes DP World, with deputy CEO Yuvraj Narayan telling Reuters that vessels without Israeli connections could return to the Red Sea in as little as two weeks.

The return of vessels to the Red Sea could result in a dip of 20-25% in sea freight prices, Narayan added.

This news follows an announcement by Yemen’s Houthis that they would target only Israeli-linked ships following the ceasefire, according to the Associated Press.

Houthi attacks in the Red Sea forced shipping companies to choose the longer route around Africa. According to S&P Global Commodity Insights data, the voyage for LR tankers from the Persian Gulf to Europe costs about $200,000 less than the longer route around the Cape of Good Hope.

Disruptions in the Red Sea resulted in a $7 billion loss in Suez Canal revenues in 2024, reflecting a nearly 60% year-on-year decline, according to an Ittahideya statement. This drop is primarily attributed to the reported instability in the Red Sea and Bab El Mandab regions, which have hindered navigational traffic through the canal and disrupted global trade.

“We should approach the situation with cautious optimism. This is not a simple reversal; resilience remains the key factor,” said Azza Kamal, senior economic consultant and assistant professor of Economics at MSA University, in an interview with Business Monthly.

While the return to the Suez Canal presents several advantages, shipping companies are proceeding with caution. Despite ceasefire commitments from Houthi militants, major shipping firms—such as MSC Mediterranean Shipping, A.P. Moller-Maersk, and CMA CGM—remain hesitant to resume Red Sea routes due to ongoing regional instability, Kamal explained.

French shipping line CMA CGM said on January 27 that it will continue to avoid the Suez Canal and use the Cape of Good Hope passage despite the ceasefire in Gaza, the company said on its website. The shipping giant sees the Gaza ceasefire as “a positive but fragile sign for the global shipping and logistics industry.”

“Stable conditions are crucial for the continued use of the Suez Canal, helping to avoid costly reroutes around Africa, which can add between $300,000 and $500,000 per vessel,” she explained.

As an example, she highlighted the transport of Russian wheat from Novorossiysk to Mombasa. When using the Cape of Good Hope route as an alternative to the Suez Canal, the distance increases by 5,607 nautical miles, extending the journey by 14.7 to 34.2 days. This significant delay results in a substantial rise in fuel and operational costs for shipping companies.

“These increased shipping expenses are typically absorbed by exporters to some extent, ultimately raising the landed cost of Russian grain in Mombasa. Persistent disruptions may lead Kenyan importers to explore alternative suppliers from regions unaffected by these shipping challenges, such as Australia or Argentina,” she noted.

Little Bitter Lake expansion

As traffic returns to the Suez Canal, Egypt is set to manage a higher volume of ships with the upcoming completion of a 10-km extension near Little Bitter Lake. Scheduled to launch in the first quarter of 2025 after successful tests, the expansion will extend the two-way passage to 82 km, enhancing capacity to support the growing trade flows as global shipping lines gradually resume operations in the Red Sea, according to a statement by the Suez Canal Authority.

Additionally, the full doubling of the canal’s navigational channel from kilometer 122 to kilometer 132 has been completed, which will help increase cargo volume and accelerate ship movement in both directions.

Kamal emphasized that the Suez Canal plays a crucial role in global trade, handling about 12% of total trade and 30% of global container traffic annually. It also reduces transit times by 10 to 14 days compared to the Cape of Good Hope route.

Carbon emissions

As the world intensifies efforts to reduce carbon emissions, the environmental advantages of using the Suez Canal over alternative routes grow more significant.

The EU’s Carbon Border Adjustment Mechanism (CBAM), introduced on October 1, 2023, under Regulation 2023/956, aims to reduce carbon emissions by imposing a fair price on the carbon emitted during the production of carbon-intensive imports to the EU, according to an article published on the European Commission’s website on October 17, 2023.

The CBAM is expected to be fully implemented by 2026. However, in the initial phase, it will apply only to products with a high risk of carbon leakage, including iron/steel, cement, fertilizers, aluminum, hydrogen, and electricity.

Kamal pointed out that each trip through the Suez Canal, rather than the Cape of Good Hope route, saves approximately 20,000 metric tons of CO2 emissions.

“For shipping companies, these operational enhancements translate to an estimated $15–$20 billion in annual savings across the global industry,” she added.

As global trade begins to stabilize, the Suez Canal continues to be a vital artery for shipping, ensuring cost savings, efficiency, and resilience for the global economy.