Monday, May 20

Impact Of Red Sea Disruptions On International Trade

Edited by Uzma Parveen
Impact Of Red Sea Disruptions On International Trade

The Houthi militias in Yemen intensified their attacks on supplies within the Gulf area as a show of support for the Palestinian Islamist organization Hamas, which is fighting Israel in Gaza. Backed by Iran, Houthi rebels, as a means of protesting Israel’s military occupation of Gaza, are blocking the Bab-el-Mandeb Strait, which leads to the Suez Canal in the Red Sea region, and connects Asia to sections of North; and East Africa to Europe.

Red Sea region is vital for almost 30 per cent of global container traffic and 12 per cent of global trade. About $1 trillion of world trade passes through the Red Sea every day. Four out of five of the world’s largest container shipping companies have suspended routing through the Red Sea. So far, around 95 per cent of vessels have been rerouted through the Cape of Good Hope that added 4000-600 nautical miles and an additional 14 to 20 days of journey. This led to the combined impact of higher freight costs, insurance premiums and longer transit times that caused imported goods to become significantly expensive.

The Red Sea shipping crisis could impact India’s exports mostly to Europe as about 80 per cent of the shipments to Europe takes place through the Red Sea region, according to the estimates of Ministry of commerce and industry. The European Union (EU) contributes to over 15 per cent of India’s total goods exports. According to the ministry reports, low value products such as agriculture and textiles to Europe are expected to face adverse impact in the Red Sea region.

The present trade disruption with EU is further going to impact an already weakened demand amid ongoing Russia-Ukraine war. The cost of demand is adding up more due to the alternative trade routes additional charges. Fears of disruptions in the Red Sea region have risen and oil prices have begun on the upward side after US and UK, with support from Australia, Canada, Bahrain and the Netherlands, attacked Houthi rebels in Yemen in retaliation for the attacks on commercial ships.

Indian government trying to keep a lid on the brewing prices by working on alternate trade routes and has asked Export Credit Guarantee Corporation (ECGC) to not to raise insurance premiums. The Indian Navy has deployed frigates and destroyers in the central and northern Arabian Sea to assist merchant vessels. Earlier US also announced operation ‘Prosperity Guardian’ along with 20 countries to jointly address the security challenge in the Red Sea and Gulf of Aden.