In line with our post speculating about reasons for the Chinese government to back a Nicaragua Canals, comes a thesis by an Argentine air force colonel that tries to quantify the costs to world trade from interdicting various naval choke points. Since he lacked actual point-to-point trade volumes, he was forced to estimate volumes based on data from country-to-country trade flows. I am not clear what sorts of biases that introduces. He also assumed a cost per ton-mile of 0.2¢, which is rather low. (See page 18.)
That said, his estimate of the annual cost from closing the straits of Malacca, Sunda and Lombok (e.g., a complete blockade of all traffic through Indonesian waters) comes to about $10.5 billion. Shutting down the Bab-el Mandeb (the strait between Djibouti and Yemen) would cost about $13.4 billion. It is not clear what percentage of that would fall on Chinese consumers, producers or shippers.
Let’s pull a number out of the sky and say that half the cost would fall on China one-way-or-another. Is a $50 billion canal in Nicaragua worth it as insurance? 30-year U.S. treasuries are yielding about 2.6%. Assuming that the canal comes in at cost and hits its projections it should be able to earn that through 2045. In that sense, maybe building it would have no opportunity cost, assuming that the money would have been otherwise plonked into American federal debt. The Gran Canal is still a terrible business proposition, but it would make cheap insurance against a possible $5.2 billion loss if Indonesia goes up in flames or some terrible conflict erupts across the Indian Ocean.
Only ... there is still no sign of official Chinese backing for the Canal Rojo!
Am I succeeding?