New Delhi: With Israel pledging retaliation for Iran’s missile launches, India Inc. is gearing up for further economic disruptions along the critical Red Sea route.
The conflict can lead to higher cargo freight rates as Lebanon’s Iran-backed Hezbollah militia has close ties with the Houthi rebels in Yemen — responsible for most attacks on ships travelling via the Red Sea route, say, industry experts, adding that a direct conflict between Israel and Iran may severely disrupt the crucial trade route for the Indian exporters.
The Red Sea crisis, which started in October last year, was instigated by Iran-backed Houthi rebels who have been disrupting trade in the area.
This conflict has had a direct impact on India’s petroleum exports, which dropped 37.56 percent to $5.96 billion in August this year, down from $9.54 billion in the same month last year.
As per a recent Crisil Ratings report, the Red Sea route through the Suez Canal is a crucial trade artery for Indian companies, facilitating trade with Europe, North America, north Africa, and part of the Middle East.
The report mentioned that these regions accounted for 50 percent of India’s exports worth Rs 18 lakh crore and 30 percent of imports worth Rs 17 lakh crore in FY23. The country’s overall merchandise trade (exports and imports combined) in FY23 was Rs 94 lakh crore, with 68 percent (in value terms) and 95 percent (in volume terms) shipped by sea.
Despite the challenges, the adaptability of India Inc. is a source of hope, as companies are exploring alternative, albeit longer, routes past the Cape of Good Hope.
Despite the disruptions, India’s trade with the Middle East remains robust, thanks to the support of friendly regional players such as Saudi Arabia, the UAE, Kuwait, and Qatar. The bilateral trade between India and the Gulf Cooperation Council (GCC) countries reached $162 billion last year, a testament to the resilience of these relationships.
According to the latest government data, the GCC now contributes 15 percent of India’s total trade, and sectors like energy, defence, security, and health are not just growing, but thriving in the region, offering promising future trade prospects.
Moreover, according to the latest International Monetary Fund (IMF) data, the trade via the Egyptian Suez Canal nosedived by 50 percent (year-over-year) in the first two months of the year. In FY24, the Suez Canal’s annual revenue dropped 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 fiscal year 2023/2024 that ended in June from $9.4 billion a year earlier”.
Experts say rising tensions in the Red Sea area are affecting the Suez Canal, the maritime transportation 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 the escalating tension in the region.
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–IANS
