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A Suez Halt Would Boost Crude Even as Flow Continues

A blockage of Egypt’s Suez Canal or the crude pipeline linking the Red Sea and Mediterranean may cause oil prices to rise even as alternative transit routes help maintain supplies, the International Energy Agency said.

Global crude prices have increased since Egypt’s military ousted Mohamed Mursi from his role as president last week, highlighting the country’s importance as a transit route for almost 4 million barrels of crude and refined oil products a day, the Paris-based agency said in its monthly report today.

“Although a hypothetical disruption to one or both of these routes would undoubtedly unsettle markets, it would not altogether take supply off the market,” the IEA said. Crude shipments from the Persian Gulf to Europe could be re-routed around the Horn of Africa, adding 15 days to transit time, the IEA said.

Crude prices have risen in the past after Iran threatened to close the Strait of Hormuz, the chokepoint at the exit of the Gulf. A closure of Hormuz, passage for a fifth of the world’s traded oil, would leave OPEC’s main producers with limited alternative routes for export.

Egypt’s interim Prime Minister Hazem El-Beblawi, appointed July 9, is seeking to form a government to revive the economy and ease political polarization. Those efforts may be hindered as the new administration faces opposition from Mursi supporters contesting the removal of the Islamist leader and as authorities ordered the arrest of a Muslim Brotherhood leader accused of inciting deadly clashes.

Excess Capacity

The Suez Canal and SUMED pipeline, as the link between Egypt’s ports of Ain Sukhna on the Red Sea and Sidi Kerir on the Mediterranean is known, together handled 3.8 million barrels a day of crude and products, according to 2011 data cited by the IEA. Most of that traffic was northbound.

The 2.4 million barrel-a-day SUMED pipeline is used only for shipping crude northward and has carried mainly Saudi and Iraqi oil to European markets so far this year, the IEA said, citing preliminary ship-tracking data.

Iran was recently banned from using the SUMED pipeline, the IEA said, meaning its exports of about 100,000 barrels a day to Turkey must be shipped through the Suez canal.

The 200 mile-long (322 kilometer) pipeline route is perceived as less susceptible to risk of interruption because it passes through the desert and sparsely inhabited areas, whereas the Suez Canal is near cities, the IEA said. The pipeline may have an additional 900,000 barrels a day of capacity that’s not currently in use, meaning it could handle some of the oil that wouldn’t pass through the canal in the event of a halt there, it said.

Shipping through the Suez Canal continued normally today, with 43 vessels transiting the waterway, according to the Suez Canal Authority.

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