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Suez Canal Closure Seen as Unlikely

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Scott Eden will join NBR on Tuesday (check local listings) to discuss how the ongoing turmoil in Egypt is impacting oil tanker stocks.

NEW YORK (TheStreet) -- Concerns have eased that the political turmoil in Egypt -- and a potential revolution in that nation -- could force the closing of the Suez Canal.

The crucial artery, through which about 4.5% of the world's oil production passes each day, is controlled by the Egyptian military and operated under the auspices of the government-owned Suez Canal Authority.

It generated some $9 billion for Egypt in 2009, the latest year for which data is available, and thus represents the nation's third-largest source of foreign currency. For that reason, analysts say, it's in no one's interest to close the canal -- neither the embattled regime hanging on to power by a thin string, nor any new government that takes its place.

The greatest concern at the moment, according to analysts, is that a labor shortage caused by the uprising or the resulting national curfew might disrupt the canal's operation.

Word on the Street

So far that hasn't materialized, with vessels proceeding normally through the waterway, according to canal officials, despite the fact that the city of Suez has seen some of the worst violence of the crisis so far. The city sits at the southern, Red Sea end of the canal.

The Suez Canal Authority's web site appeared to be down Monday morning, but that was likely because the regime of President Hosni Mubarak had cut Internet services late last week, apparently in a bid to stem communication between demonstrators.

On Friday, share prices of oil-tanker concerns shot higher as speculation raged that the canal might be at risk of closing, a circumstance that would drive rates for maritime crude transport far higher. If the Suez were to shut down, ship operators would need to re-direct their vessels around Africa's Cape of Good Hope. The longer travel times would take vessels off the market, pushing up rates. As it happens, the tanker market has performed terribly for ship owners in recent months, laid low by oversupply.

"I think investors were looking for any ray of hope, because it's just been so negative," said Natasha Boyden, shipping analyst at Cantor Fitzgerald. "Now it looks like we're back to where we started, which is stuck in the doldrums."

Tanker stocks also spiked Friday on short covering, analysts say, with short sellers unable to stomach the prospect of holding their positions through the weekend, risking the possibility of a Suez closure.

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