It was an idea that first emerged in the 17th century; but it may take 21st century technology to turn it into reality.
The idea is to build a canal across the less-than-30 mile Kra Isthmus in Thailand – connecting the Andaman Sea in the Indian Ocean to the South China Sea.
The logic supporting the Thai Canal, or Kra Canal, is solid – ships would no longer have to go the long way around Singapore, through the pirate-infested chokepoint known as the Strait of Malacca.
Shippers could shave off three or four days from their travel time, translating to a $300,000 savings on the cost of a 100,000 ton cargo ship voyage.
More than 15 million barrels of oil per day – about 17% of the world’s daily production – are transported through the Strait alone.
The Kra Canal would also alleviate congestion. The Strait can currently accommodate about 122,000 ships. However, by 2025, roughly 140,000 ships will be plying the waters.
Delay, Delay, Delay
So why hasn’t this project moved forward yet?
One reason is money. The canal is estimated to cost at least $20 to $30 billion to build.
And of course, there’s the matter of complicated Thai politics. Some in Thailand say the canal will divide the nation into two countries.
Then there’s the debate over how the economic benefits of the canal will be divvied up.
From a practical viewpoint, there are 13 proposed routes through the Kai Isthmus as to where the canal would actually go. And no surprise – neighboring countries, Singapore and Malaysia, who want to keep benefiting from the ship traffic through the Strait, are strongly opposed to the canal.
China’s Maritime Silk Road
Overlaying this is the geopolitical battle between China and the United States. for influence in the region.
China would like to make the proposed canal a part of its Maritime Silk Road. This was suggested in the ambitious plan unveiled in 2013 by Chinese President Xi Jinping – a plan to create the modern-day equivalent of the historic Silk Road. The plan aimed at having new land and water routes tying China to trading partners all the way to Europe.
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The China-led Asian Infrastructure Bank is the perfect financing tool for such a project. I expect the project to get a push, as China needs to play a little catch-up.
In neighboring Vietnam, the government has given the go-ahead for a new $2.5 billion deep water port – the Hon Khoai Port – to be built in Vietnam’s southern most province, Ca Mau. It’s believed that 85% of the funding for it will come from the U.S. Export-Import Bank and that the project will be led by American engineering giant Bechtel.
The Vietnamese port could stand on its own merits as a port for coal. But half of its berths are slated for non-coal items. Ironically, that means it will absolutely flourish with the building of a China-backed Kra Canal. See the map below.
Will It Be Built?
There was a supposed agreement this past summer between Thailand’s Asia Union Group and China-led China-Thailand Kra Infrastructure & Development to build the canal. The Chinese company is already building other infrastructure in Thailand.
But within days, there were denials of any deal. Thailand likely backed away under intense diplomatic pressure from the United States.
But sooner or later, the Thai government will give a China-led project the thumbs-up. The economic opportunity to become a regional maritime center, surpassing Singapore and Malaysia, is going to be too good to pass up. And China is patient enough to wait for Thailand’s approval.