C-LEVEL Maritime Risks Weekly Update: Feb. 19

Trouble on the Suez

The riots along the Suez Canal have had significant consequences, and it appears that the canal was being shunned by a significant number of ships, especially tankers, in reaction to the unrest. The Suez Canal Authority released revenue numbers for January, which were 4.6 percent lower than those from December, and 9.1 percent lower than January 2012. Experts in Egyptian news reports were quoted as saying that the drop in transits was due to ships that were worried about the bloody riots last month that spilled into the canal zone.

And given that the riots started on Jan. 24 in Port Said, it’s likely that the report doesn’t provide a full picture of the immediate effect the violence had on the canal.  We believe that 4.6 percent drop can be largely attributed to that last week, and therefore, the revenues for that one week dropped by nearly 20 percent. In other words, almost one ship out of five avoided the Suez Canal in the last week of January.

The unavoidable conclusion is that the riots really hurt transits and revenues. They may also have prompted the surprise move to raise fees in May by anywhere from three to five percent.

Meanwhile, protests are continuing in Egypt – even if scores aren’t left dead every day. The instability has been a cause of much concern in the region, as Islamists and secularists continue to clash throughout the country. And Port Said Ultras – the football fanatics who have set off demonstrations and largely shut down Port Said – continue to demonstrate and disrupt the city.

Bottom line: today’s Egypt is a pot with a flame lit too high under it and a lid that’s banging up and down as the soup boils loudly and erupts in bursts that can splatter and scald anyone nearby.

Interestingly, news has surfaced that Israel has been developing a “Med-Red” rail line to move goods and people between the Red Sea and the Mediterranean – a project financed by China. The project makes perfect sense to us as shippers look to diversify their risk exposure. What’s really interesting is that the foreign stakeholders are pressing Israel to speed up the project in light of the Egyptian unrest, as it could be an alternative to the canal when it shuts down.

U.S. budget cuts

It is looking increasingly likely that the U.S. Congress will let the “sequester” kick in on March 1, forcing the military to reduce spending by almost 10 percent each year over the next decade. The sequester is a forced, across-the-board budget cut to federal programs imposed by a Congress that has been unable to find any alternative compromises. The conventional wisdom here is that politicians will then lessen the severity of the cuts on certain programs, with Defense likely among those that will have an at least partially restored budget.

Still, this means that the Pentagon budget could see serious and permanent cuts, and they are already deferring repairs and maintenance, as well as deployments to areas like the Persian Gulf. (See last week’s report for more details.)

Enrica Lexie’s sad one year anniversary

Feb. 15 marked the one-year anniversary of the fatal shooting of two Indian fisherman by Italian marines hired to provide security for the M/V Enrica Lexie. Two Italian marines were arrested and charged with murder in an Indian court, while the Italians’ lawyers argued that India did not hold jurisdiction in the case. The Indian Supreme Court decided differently, saying India does have jurisdiction.

C-LEVEL noted the editorials of one Italian observer and one Indian observer, run to commemorate the one year anniversary.

The Italian is still suspicious that the special tribunal could become yet another political arm-wrestling match between New Delhi and Rome. He worries that the two Italians could suffer even more harm if Italy doesn’t keep pressure on India to concede it doesn’t have jurisdiction in the case and let the two men return to Italy to be tried before a military tribunal.

The Indian commentator already assumes the Indian Supreme Court decision means India does have jurisdiction and that the special tribunal will be more judicial than political. He assumes the Italians will be given a fair trial in India, in which they will be found guilty, and thanks to a new treaty with Italy, they will be released back to Italy to serve out their sentences.

We believe the Indians will try the case in India, after the Supreme Court’s ruling in favor of this action, though the idea that the Italians will incarcerate their own men after what they consider a usurpation and miscarriage of justice seems unlikely.

The Enrica Lexie case is by no means going to be over any time soon. The two sides are still too far apart.

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Michael G. Frodl, Esq. is founder and head of Washington, DC-based C- LEVEL Maritime Risks consultancy. The group has special expertise in Gulf of Aden / Indian Ocean piracy and the threat it poses to the energy supplies of the Far East, as well as both Gulf of Guinea and SE Asia piracies. The group's specialty is trends analysis & long range forecasting. Michael has provided advice on emerging risks, including environmental, energy, climate, cyber & terrorism to global reinsurers and members of the national security community in Washington, DC for over 15 years. He's also been quoted extensively in specialty publications serving the luxury yacht market out of London. He can be reached directly atmgfrodl@tidalwave.net.

The above text was adapted from the C-LEVEL Maritime Risks weekly newsletter. Find out more at http://c-level.us.com/page.htm.