THE ECONOMIC WEEKLY July 6, 1957 From U N Headquarters Economic Impact of Suez Crisis on Middle East A 135 page document under the unprepossessing title Economic Developments in the Middle Fast 1955 1956 has just been released at the United Nations. Chock-full of statistics, it might well hare been called "the economic consequences of John Bull's folly' in the Middle Eastern countries. For here in these pages one gets for the first time the plain, unvarnished facts of how the Suez Canal crisis affected the Arab world. The, facts do not make pleasant reading; besides it is difficult to isolate clearly the repercussions of the Suez crisis from those of current economic forces in the countries of the area. Nevertheless there are a num- ber. of, economic changes that have ensued from the events of the latter part of 1956 which the United Nations repect has considered. It is just as well that we know them. But first let us have the background to Suez trade. IN 1955 traffic through the Suez East trade using the canal, approxi­ of whom the majority in the labour­ Canal accounted for about 13 per mately $900 million 47 per cent- er group were Egyptian. About 42 cent, in volume, of world seaborne represented exports of crude oil and per cent of those in the administra­ crade Tanker cargo alone account­ oil products. In volume of cargo, tive and technical groups were ed for approximately 8 per pent of however, the Middle East figures Egyptian too. the total volume of International much more prominently, owing to trade and 19 per cent of all cargo the relative bulk of oil exports. Out Income created by sources other carried by tankers. It is estimated of the total traffic through the Suez than the Suez Canal Company, but that it costs probably $600 million Canal, estimated at 107.5 million dependent Indirectly on the opera­ more per year to carry the same metrictons in 1955, the Middle East tion of the canal, includes the in­ cargo around the Cape of Good accounted for 66 per cent, while 60.4 come of workshops in Port Said Hope and that about half of that per cent represented oil exports of employing about 1,400 workers and extra cost would be needed to trans­ the region. doing business other than for the port crude oil from the, Middle East company; the income of trades and to Western Europe and North Ame­ In the Economy of Egypt services supplying tourists and the rica with the present facilities. The economic benefits to Egypt income of industry and services Apart from oil, the main northbound of the Suez Canal are derived from supplying fuel, water, food and goods that utilise the canal are raw two sources which directly add to power to ships directly or to the materials' including metals, cereals, the national income of the country. Suez Canal Company as intermedi­ vegetable oils and seeds, spices, sugar The first is that part of transit dues ary. It Is impossible, says the re­ and textile fibres. Southbound traffic which is transferred to Egypt or is port, to estimate with any precision, carries plainly cement, fertilisers' spent by the Suez Canal Company the total amount of this indirect paper,' sugar, machinery and a (Compagnie Universelle du Canal Income. variety of other manufactured goods Maritime de Suez) In the country. from Europe to Asia, Australia, The second source Is the expendi­ Foreign Exchange and Eastern Africa. ture of passing ships and their Practically all receipts from passengers on goods ' and services Traffic and tourists passing through To the countries of the Middle during their short stops in canal the Suez Canal are in foreign ex­ East themselves, the Suez Canal as ports. a sea route has been of minor im­ change; these receipts have risen portance except as a passage for the The latter factor is difficult to considerably in the post-war period. exports of the oil-producing coun­ estimate except where the supplying Of these receipts a large part was tries. By far the largest part of the of such goods and services is handled transferred abroad by the Suez region's international trade in com­ by the authority in charge of the Canal Company for distribution of modities other than oil is carried on canal. The total direct addition to dividends, additions to reserves and with countries west of the Suez national income of Egypt arising to its pension fund. The balance, Canal or within the area itself. from these sources has been esti­ which remained in Egypt, was Middle East countries which have mated at approximately £E 11 mil­ significant as a source of foreign no direct access to the eastern Medi­ lion in 1955 and at around £E 9 mil­ exchange. terranean seaboard -Jordan, Iraq, lion In each of the four previous Iran, the Sudan and the Arabian years. For 1955 this was less than Nationalisation of the Suez Canal peninsula—find it convenient to 1.5 per cent of Egypt's national in­ Company which took place on July transport part of their commodities come and about 5.7 per cent of the 26, 1956 did not have any significant destined, for Western Europe and budget revenue. The amount for direct effect on the flow of traffic. America across Lebanon and Syria 1955 was considerably larger than However, it led to the blocking of by rall truck or air. in the period before 1947, when Egyptian Government assets in transit dues did not exceed one fifth France, the United Kingdom and The total value of Middle East of the 1955 level. the United States. Traffic through trade that passed through the Canal the canal ceased completely, how­ in 1955 is estimated at $2 billion. An important part of the expendi­ ever, with the outbreak of hostilities This compares with an estimated ture of the Suez Canal Company in at the end of October. value of $11 billion for all goods Egypt was on wages and salaries that passed through the canal of employees. In July 1956 It em­ Following nationalisation and up during that year. Of the Middle ployed over 5,100 workers in Egypt to the closing of the canal at the 807

THE ECONOMIC WEEKLY July 6, 1957 end of October, Egypt received only Consequence of Military Operations Impact on the Oil Industry a part of the transit dues paid by Military operations late in October Blocking of the Suez Canal and canal traffic, the rest being paid and in early November 1956 were interruption of the oil flow through Into the accounts of the Suez Canal almost completely limited to Egyp­ pipelines via Syria resulted in a Company abroad. Total dues during tian territory and involved, directly, widespread change, in the last two the period were of the order of only the two Middle Eastern coun­ months of 1956 and early months £E 10 million, of which around £E tries, Egypt and Israel. The direct of 1957, in patterns of oil production 4 million acerued to Egypt. The cost material losses were incurred wholly transport, supply and refining in the of maintains and running the in Egypt. No estimate of these Middle East as also of the revenue canal for an equal period in 1955 losses is available. Damage fell drawn from oil. was Jus under £E 3 million. Thus particularly in the field of trans- Production of crude oil during Egypt's receipts from transit dues sport and included airports, airplan­ 1956 as a whole was 5.7 per cent between July and October did not es, roads, military vehicles, railways higher than in 1955 but during greatly exceed current expenditure and floating equipment used in November and December pro­ on the canal during the period. operation of the Suez Canal. duction fell by about 38 Such expenditure was largely per cent below the rate of ade, however, in local currency Indirect losses to Egypt resulting the preceding months of 1056. This and the dues which were received from military operations were also was essentially due to the reduction In foreign exchange were thus at quite substantial. With the block­ in effective means of transport. The a rate comparable to that which ing of the canal, Egypt ceased to quantity of oil shipped by tanker prevailed before nationalistation. - receive that part of the transit dues which it had been receiving. Suez was substantially reduced as a re­ Change In Direction of Trade sult of rerouting of tankers around The direction of Egypt's foreign Canal workers, numbering over 5,100 and workers supplying them ser­ Africa; the amount of oil transport­ trade adapted itself to the change in ed through pipelines to the Mediter­ Egypt's international payment posi­ vices were unemployed. Loss of income from these sources was at ranean seaboard also fell, by 64 per tion following the freezing of its cent. assets abroad. Imports from the an annual rate of £E 11 million. Sterling area were substantially re­ Loss of secondary income was also The country most affected by the substantial. duced and those from Eastern Eu­ reduced production of crude oil was rope increased correspondingly. Im­ Iraq which previously exported three Almost to counteract these losses ports from the latter area included quarters of its oil through pipelines as it were, in November the Egyp­ which ran through Syria. in particular, wheat and crude oil. tian Government appropriated vehi­ Clearing accounts in favour of The blocking of the Suez Canal cles and military materials in the Egypt that had been accumulated also substantially reduced exports stores of the Suez Canal military with Eastern European countries and production of oil in both Saudi base which had been evacuated by the amounted to £E 9.6 million net by. Arabia and Kuwait which depended British. It also placed under sequest­ heavily on the canal. Iran was only the end of "July; these were utilised ration, or public custody, a consider­ to pay for imports from Eastern slightly affected by the shortage of able number of British, French and tankers, partly because of shipments Europe or to settle payments for other establishments located in imports from Western European of crude petroleum to Bahrain to Egypt, a large proportion of which replace the latter's imports from countries. Credits opened by India, were released by mid-February. Indonesia and Japan, countries Saudi Arabia. But interestingly which accepted payments in Egyp­ The largest concerns which were enough, for the area as a whole, income from petroleum showed an tian pounds or deferred payments put under custody included oil pro- increase for the whole of 1956 as for their exports to Egypt and cre­ ducirg and distributing companies, compared with 1955, despite the dits in Swiss franc advanced by particularly the Anglo-Egyptian Oil 9 considerable fall in exports during the People's Republic of China sup­ Company which owned an oil re­ the last two months of the year. In plemented available foreign ex­ finery and five oilfields, three of Syria, for example, receipts from change. which are located in the Sinai pen­ insula. Eleven banks with a total off companies In 1956 totalled ap­ Withdrawal from IMF capital of £E 2.2 million, a large proximately is 115 million compar­ In addition, Egypt withdrew $ 15 number of branches of insurance ed with about $S 50 million in 1955 million from the International companies' and several import and £S 6 million in 1954. Monetary Fund in September 1956 agencle" were also sequestrated. In General Economic Effects and obtained a credit of $ 15 million January 1957 ownership of six se­ What are the general economic from Saudi Arabia. These measures questrated banks and of the insur­ effects of the Suez crisis on the Mid­ enabled the Government to pur­ ance companies was transferred to dle East? The direct economic im­ chase essential imports and at the a public corporation. This body pact says the report, of events In same time to maintain the level of was created to invest funds in public October and November 1950 was Its short-term balances, 'They also projects with a view to transferring shortlived and quickly diffused. enabled Egypt to add £E 5 million them finally to private Egyptian However, the effects of the events In gold to its currency cover in hands. According to an official apparently were felt beyond the area October and December and thus to statement, compensation for the of the Immediate conflict The increase its total holdings of gold banks and insurance companies that heightened political tension created and foreign exchange by the end of were taken over would be paid to by the attack stimulated additional 1956 to about their level in July of the public custodian pending final military expenditure in several that year. settlement of claims. countries not directly involved in 809