India Inc. is preparing for a larger trade interruption along the vital Red Sea route as the Middle East crisis heats up and Israel vows to strike once Iran launches missiles.
Given that the Houthi rebels in Yemen, who are largely responsible for attacks on ships using the Red Sea route, have close ties with Lebanon’s Hezbollah militia, which is supported by Iran, industry experts warn that a direct conflict between Israel and Iran could seriously disrupt the vital trade route for Indian exporters. This could result in higher freight rates for cargo.
October of last year marked the beginning of the Red Sea crisis as Houthi rebels supported by Iran interfered with local commerce.
This has had an impact on India’s petroleum exports, which fell from $9.54 billion in August of last year to $5.96 billion in August of this year, a 37.56 percent decline.
According to the research, in FY23, these areas constituted half of India’s exports, valued at Rs 18 lakh crore, and thirty percent of its imports, valued at Rs 17 lakh crore. In FY23, the nation’s total goods trade (exports and imports combined) was worth Rs 94 lakh crore, of which 95% of the volume and 68% of the value were delivered by sea.
Companies have been compelled to search for longer, other routes beyond the Cape of Good Hope due to the assaults on ships that have been operating in the Red Sea region since November of last year.
According to the Crisil study, this has resulted in a 15-20 day delay in delivery, as well as a significant rise in transit costs due to increasing freight rates and insurance premiums. Industry insiders claim that favorable regional players like Saudi Arabia, the United Arab Emirates, Kuwait, and Qatar are the reason why India’s commerce with the Middle East is still strong. Last year, there was $162 billion in bilateral commerce between India and the nations of the Gulf Cooperation Council (GCC).
According to the most recent official statistics, the GCC currently accounts for 15% of India’s overall commerce, and the area is seeing growth in the energy, defense, security, and health sectors.
Furthermore, commerce via the Egyptian Suez Canal plummeted by 50% (year over year) in the first two months of the year, according to the most recent figures from the International Monetary Fund (IMF). The Red Sea issue caused the Suez Canal’s yearly income to plummet by about 23.4% in FY24. The Suez Canal Authority (SCA) Chairman, Osama Rabie, said that “revenues fell to $7.2 billion in the fiscal year 2023/2024 that ended in June from $9.4 billion a year earlier.”.
Experts claim that the growing hostilities in the Red Sea region are having an impact not only on the Suez Canal but also on worldwide supply chains, commerce, and the marine transportation industry.
A travel advice was issued by India on Wednesday, cautioning its nationals against making any unnecessary trips to Iran in light of the rising tensions in the area.
