The recent blockage of traffic through the Suez Canal illustrated the recent shift in the global oil trade towards Asia’s developing economies rather than in oil transit from the Middle East to Europe or North America, according to the International Energy Agency (IEA) on Sunday.

A 400-meter-long container ship ran aground across a single-lane stretch of the canal earlier last week, halting transit in both directions on one of the world's largest seaborne trade chokepoints.

According to maritime experts, moving the vessel out of the way could take days, if not weeks.

However, the EIA said the blockade has not wreaked havoc on oil markets so far.

“While the inventory overhang that built up last year is gradually being worked off, crude and oil product stocks globally remain at comfortable levels. And some of the world’s largest and newest tankers are anyway too big to use the canal,” the agency said.

The Suez Canal was opened in 1869 to facilitate the movement of goods between the Mediterranean and the Red Sea while avoiding the need to venture south around the Cape of Good Hope, a journey that would require an extra seven to nine days.

The IEA said the closure of the canal underscored the recent changes in the global oil trade, clarifying that the vast majority of oil transiting through the canal is not from the Middle East bound for Europe or North America, but Asia's developing economies.

According to the agency, while the canal can accommodate all traditional clean oil product tanker sizes, very large crude carriers (VLCC) can only transit the canal when loaded below their 250,000 tonnes capacity. It added that Suezmax crude tankers, which can carry up to 200,000 tonnes of crude oil, are specifically designed to navigate through the canal.

However, the agency said in recent years, the growing fleet of ultra-large crude carriers (ULCC), with deadweight ranging between 300,000 and 500,000 tonnes have reshaped crude oil routes as they can only load and offload at specially adapted ports and cannot transit fully laden through three of the world’s major chokepoints – the Strait of Malacca, the Suez Canal and the Panama Canal.

The IEA emphasized the importance of the Suez Canal in the global oil trade, transiting 5% of the world’s crude oil, 10% of oil products and 8% of LNG.

The canal also has a symbolic significance, splitting the world into two distinct regions: East of Suez, which includes the Middle East and the Asia Pacific; and West of Suez, more commonly known as the Atlantic Basin, comprising the Americas, Europe, Africa and the former Soviet Union.

While most oil trade takes place within its region, the agency said the size, direction and content of flows between them have undergone some dramatic changes over the last decade.

“Just 15 years ago, East of Suez was a net exporter of crude oil as Middle East crude production was 4 million barrels per day to 5 million barrels per day in excess of what they and Asia consumed. Europe and the US combined imported almost 5 million barrels per day of crude oil from the Middle East,” it said.

The situation reversed about a decade ago when a big oil supply surge from the US, Canada and Brazil combined with rapid economic growth in Asia flipped the crude oil balances of both hemispheres, the IEA said.

Since 2016, Asian crude oil demand has surpassed Middle Eastern crude oil exports, with the gap being filled by barrels from the Atlantic Basin.

Imports of crude oil from the Middle East to the US and Europe have fallen to just 1.2 million barrels per day (bpd) while exports from Europe and the US to the East of Suez have increased to 2 million bpd.​​​​​​​

“This trend is well reflected in Suez Canal transit figures, where eastbound crude oil flows of around 1.1 million bpd well exceed westbound flows of just 0.4 million bpd. Even including estimated volumes for the transit pipelines, eastbound crude oil shipments are higher,” the agency said, noting that varying qualities of crude oil is the main reason for bi-directional trade.

“Europe and the US export lighter grades to Asia while importing medium-heavy grades from the Middle East. However, most of the nearly 6 million bpd crude oil flow from the Atlantic Basin to the East of Suez is already taking the southern route to Asia around the Cape of the Good Hope, especially cargoes originating in North and Latin Americas and West Africa,” the agency said.

Citing its Oil 2021 report released last week, the IEA said that the dependence of East of Suez crude oil importers on the Atlantic Basin is set to increase in sharp contrast to the pre-pandemic period.

The reason for this increase in oil imports into the East of Suez is the growing refining activity.

The agency said while Atlantic Basin refinery throughput, which fell to the lowest in 50 years due to Covid-19-induced lockdowns, is not expected to ever return to pre-pandemic levels, the refinery intake East of Suez suffered a less dramatic decline and will return to 2019 levels by the end of this year.

-Demand grows in East of Suez

The rapid growth in East of Suez refining activity has generally matched the pace of demand growth in the region, the IEA said, elaborating that product trade between the hemispheres has seen less dramatic changes, compared to crude oil.

“Almost half of eastbound flows is fuel oil, for power generation in the Middle East or for marine bunkers, with the rest primarily consisting of naphtha and LPG cargoes, destined for Asian petrochemical crackers and Indian household consumption,” it added.

With increased crude oil and petrochemical demand in Asia, the flows through the Suez Canal are likely to rise again, the agency said.

“The current incident with the canal shutdown is happening at a time when the world is still recovering from the pandemic, with ample crude and product storage, and this has helped minimize oil supply disruption and price reaction,” it noted.

However, it pointed out that when the global economy and oil demand return to normal levels, “the Suez chokepoint will regain its importance.”/aa