As conflict escalates in the Middle East and Israel vows to retaliate following missile attacks by Iran, India Inc is bracing for widespread trade disruption on the key Red Sea route.
Industry experts say the conflict could lead to a surge in cargo freight charges because Lebanon’s Iran-backed Hezbollah militia has close ties to Houthi rebels in Yemen – responsible for most attacks on ships traveling the Red Sea route. Are. Israel and Iran could seriously disrupt vital trade routes for Indian exporters.
The Red Sea crisis began in October last year, when Iran-backed Houthi rebels disrupted trade in the region.
This has affected India’s petroleum exports, which declined by 37.56 percent to $5.96 billion in August this year, which was $9.54 billion in the same month last year.
According to a recent report by CRISIL Ratings, Indian companies use the Red Sea route through the Suez Canal to trade with Europe, North America, North Africa and part of the Middle East.
The report noted that these sectors accounted for 50 per cent of India’s exports of Rs 18 lakh crore and 30 per cent of imports of Rs 17 lakh crore in FY2013. The country’s total merchandise trade (exports and imports combined) was Rs 94 lakh crore in FY 2013, of which 68 per cent (in value terms) and 95 per cent (in volume terms) were shipped by sea.
Attacks on ships sailing in the Red Sea region since November last year have forced companies to look for alternative, longer routes beyond the Cape of Good Hope.
The CRISIL report further said that this has not only increased the delivery time by 15-20 days, but also led to a significant increase in transit costs due to increase in freight rates and insurance premiums.
Industry experts say India’s trade with the Middle East still remains good because of friendly regional players like Saudi Arabia, UAE, Kuwait and Qatar. Bilateral trade between India and the Gulf Cooperation Council (GCC) countries reached $162 billion last year.
According to the latest government data, the GCC now contributes 15 per cent to India’s total trade and sectors such as energy, defence, security and health are growing in the region.
Additionally, trade through Egypt’s Suez Canal declined by 50 percent (year-on-year) in the first two months of the year, according to the latest International Monetary Fund (IMF) data. In FY24, Suez Canal’s annual revenue fell by about 23.4 per cent due to the Red Sea crisis. According to Osama Rabie, chairman of the Suez Canal Authority (SCA), “revenues fell to $7.2 billion in the 2023/2024 fiscal year ending in June, from $9.4 billion a year earlier”.
According to experts, the increasing tension in the Red Sea region is not only affecting the Suez Canal, but also the maritime transport market, trade movement and international supply chains.
On Wednesday, India issued a travel advisory for its citizens, advising them to avoid all non-essential travel to Iran due to rising tensions in the region.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
