Red sea blockade could hit the Indian economy

The disruption of container traffic around the Bab-el-Mandeb Strait, a crucial shipping route connecting the Mediterranean Sea to the Indian Ocean and the shortest sea route to Europe could severely impact Indian trade and economy.

This route is used for over 50 per cent of trade and commerce by India with most of its crude oil and LNG imports coming through this narrow strait. India’s exports to Europe, Gulf countries and Africa also pass through this sea route. Bulk of India’s EXIM Trade is transacted by the Ports in Maharashtra and Gujarat since they are close to this route.

The Strait is one of the world’s major trade arteries through which 30 per cent of global container traffic and significant amounts of oil and gas vessels pass. Recent attacks by Houthi militants on container ships passing via this route has forced major shipping companies like Maersk, MSC, Hapag-Lloyd, and CMA CGM  to avoid the Bab-el-Mandeb Strait disrupting the global trade.

Advertisement: 0:08

 â€œThe strait is a vital route for India’s trade with Middle East, Africa, and Europe. If the strait is blocked, it could lead to disruptions in India’s supply chains, which could hurt its economy,” said a spokesperson of Global Trade Research Initiative (GTRI). The immediate impact on India could be increased energy costs as it may have to use longer routes around the Cape of Good Hope. Increased risk could lead to higher insurance premiums and freight rates, impacting traders.

Brent crude oil prices have crossed 78 US dollars a barrel after touching a low of 73.24 US dollars last week. British oil major BP on Monday said it will temporarily reroute tankers to avoid Red Sea because of attacks on Ships by Houthi rebels from Yemen.

“The alternative route via Cape of Good Hope will add 10-14 days to voyage time and about 30 per cent to the cost. The risk premium of ships have gone up, marine insurance of cargo is moving up and war risk surcharge is in the offing,” a spokesperson of Federation of Indian Exporters Organization (FIEO) was quoted by media reports. He expressed hope that the coalition of countries will carry out patrolling in the Southern Red Sea to restore normalcy shortly, else supply chain disruptions will impact the global economy.