In the wake of a series of attacks on cargo ships in the Red Sea by the Houthi militia of Yemen since November, concerns rise over the disruption of global trade. The Bab-el-Mandeb Strait, vital for India’s crude oil and LNG imports, faces potential long-term shipping disruptions, warns the Global Trade Research Initiative (GTRI), a prominent thinktank.
The attacks have led to a significant impact on freight rates, with the quickest marine route from Asia to Europe through the Suez Canal becoming more expensive for freight carriers. The Container Shipping Lines Association notes a twofold increase in rates to Europe, India’s second-largest export destination. Rates to the United States have also surged, up by 70%, and could further rise if the situation deteriorates, warns the association’s executive director, Sunil K Vaswani.
These attacks compound challenges already faced in the aftermath of the pandemic, the Russia-Ukraine war, and potential global economic slowdown. Global shipping giant Maersk has decided to divert vessels from the Red Sea for the ‘foreseeable’ future, contributing to a sharp rise in freight and insurance costs for Indian products.
India’s Response and Potential Impacts
The GTRI suggests that India needs to prepare for alternative trade routes, negotiate contracts for oil and LNG with alternate suppliers, offer humanitarian aid to Yemen, negotiate freight with international shipping companies, and be ready to cover part of increased insurance expenses.
The Bab-el-Mandeb Strait is critical for India, accounting for approximately 65% of the country’s crude oil imports valued at $105 billion. GTRI emphasizes the need for diversifying sources of crude oil and LNG and exploring alternative trade routes to reduce dependency on the conflict-prone Red Sea passage.
As the situation unfolds, India faces substantial economic and security risks. The conflict in the region could impact approximately 50% of imports and 60% of exports, totaling $113 billion, that rely on this route for merchandise trade with Europe and North Africa.
