The escalating crisis in the Red Sea is anticipated to have a significant impact on trade, potentially leading to increased shipping and insurance costs for exporters, said a report by the Global Trade Research Initiative (GTRI).
As per the report, the crisis may result in a 60% surge in shipping costs and a 20% rise in insurance premiums. GTRI emphasizes the need for the government to provide financial assistance to exporters to address these challenges.
The report warns of potential long-term shipping disruptions due to drone and missile attacks on merchant vessels, causing delays and escalating costs for cargo delivery. It recommends measures such as diversifying crude oil imports from regions like West Africa, the Americas, and the Mediterranean, utilizing ports outside conflict zones for transshipment, and extending financial support and insurance schemes to affected Indian companies.
To mitigate the impact of the crisis, the report proposes steps such as exploring alternative trade routes, strengthening partnerships with regional players like Saudi Arabia and the UAE, and enhancing economic cooperation and stability. The Bab-el-Mandeb Strait, a vital shipping route connecting the Red Sea to the Indian Ocean, has been disrupted due to attacks by Houthi militants, leading to rerouting through the Cape of Good Hope and causing significant delays.
The GTRI underscores the severe economic and security risks faced by India, particularly in trade with the Middle East, Africa, and Europe, as the Bab-el-Mandeb Strait is crucial for crude oil and LNG imports. The report estimates that about 50% of imports and 60% of exports with Europe and North Africa, totaling USD 113 billion, may have used this route.
India is urged to diversify its sources of crude oil and LNG and explore alternative trade routes to reduce dependency on the conflict-prone Red Sea passage. Despite India’s efforts to ensure the safety of its ships in the Red Sea, the report acknowledges the limited effectiveness, given that most Indian cargo is transported by global shipping firms.
“India must brace for an extended period of shipping disruptions in the Bab-el-Mandeb Strait. This requires a strategic blend of diplomatic, economic, and humanitarian measures to safeguard its interests. The situation demands a nuanced approach, balancing immediate needs with long-term geopolitical and economic considerations,” GTRI Co-Founder Ajay Srivastava said.