The Nicaragua Canal as insurance against major war

 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!

All of these recent posts are attempts to make a convincing argument that my assessment is wrong and the Chinese government really will go all-in and build the thing with official money.

Am I succeeding?

Comments

[Pat Jack]

Very few people are able to, or have attempted to write about the Nicaragua Canal in these terms, strategic geo-politics and global commerce strategy.

I agree with you, I think that some part, some real and rational part of the building of the Nicaragua Canal is an insurance policy.

For the Chinese government and business concerns to completely and totally rule over a Central American canal, not just to have one that the Chinese might use, that's the real game changer.

It's not just a canal for the Chinese to use, it's a Canal they own and control absolutely and completely.

Think about how much more difficult and expensive it will become for the cocaine and meth cartels to export the drugs into the U.S., that huge, drug hungry market, and to bring their cash back with the entire Central American land mass interdicted by the Chinese.

The Chinese are not going to allow the drug trade over their canal zone, and the CIA and the US banks that launder the BILLIONS in drug monies are going to be hurt bad by the Nicaragua Canal.

There are many reasons for building the Canal, some which we cannot even ascertain at this time but will only become apparent with the completion of the canal.

Good conjecture on your part for sure.