Longer stalemate in the Red Sea worrying for India’s imports and exports

Unbelievably for the 21st century, small groups of Yemeni Houthi ‘pirates’ on the Red Sea have brought a $1-trillion-plus global trade using the sea route almost to a grinding halt. The Houthis have been attacking vessels with anti-ship missiles and have not spared even US Navy destroyers. Cargoes are being looted and captured seamen thrown into the sea.

The attacks are believed to be in retaliation for Israeli offensive against Palestinians in Gaza, which has killed over 24,000 Palestinians and devastated Gaza, having displaced its entire population. With Houthis attacking commercial vessels passing through the Red Sea, ships have been diverted to pass through the Cape of Good Hope, adding more than 3,500 nautical miles (6,500 km, approximately) to the journey and half a month of extra sailing, adding to the cost of fuel, insurance and wages etc.

India is yet to react to the attacks except keeping its naval frigates in the sea to ensure safety of the cargoes and seafarers. India is the world’s third largest oil importer and gets the bulk of its Russian supplies, which made up 35 per cent of the country’s crude oil imports last year. Although Russian vessels are not yet the prime targets of the Houthi pirates, safety concerns have led to diversion of many ships, leading to a shortage of vessels due to the longer journey.

The Red Sea route via the Suez Canal accounts for 50 per cent of the country’s exports and 30 per cent of imports. Among the sectors deeply affected by the Houthi piracy are perishable items such as agricultural commodities, farm products, and marine foods, all carrying low margins. The crisis has hurt the export of buffalo meat with almost 60 per cent of India’s buffalo meat exports going through the Red Sea to north African countries and Russia. India is also the world’s biggest importer of vegetable oils and much of the import passes through the Red Sea. The supply of sunflower oil has also been affected and buyers are shifting to other vegetable oils. Fertilizer shipments are getting delayed.

A prolonged strife, it is feared, will affect profitability and working capital cycle of India’s export-oriented industries. “The extent of this will vary depending on sectoral nuances. Supply chain issues could also intensify, curbing trade volume and renewing inflationary pressures,” rating agency CRISIL has said.

In a recent credit alert, the rating agency said Basmati rice exporters, shipping a third of India’s produce to these regions, are feeling the pressure. They are selling part of their inventory in the domestic market. Marine foods like shrimp and prawn could see a significant impact as 80 to 90 per cent of the production is exported, over half of which flows through the Red Sea.

The ‘pirates’ seem to be motivated more by political considerations this time than in offloading goods to make money. They also appear to be selective, choosing vessels by the flags they fly or the origin and destination of cargoes. They have till now spared Indian, Russian, Chinese and West Asian ships. The attacks are concentrated more on ships or shipments linked to countries supporting the Israeli offensive.

India is anxious as the Red Sea route accounts for almost 50 per cent of its exports, a substantial part of which are meant for EU member countries, the UK, and the USA. With no sign of an Israeli withdrawal from Gaza or a ceasefire, the possibility of the crisis lasting longer is not ruled out.

Chances of escalation also appear high with several naval forces, including the Indian Navy, active in the Red Sea trying to prevent Houthi pirates from grabbing cargo carriers. However, they seem to have had little impact on increasingly desperate Houthi attacks on cargo vessels in the Red Sea.

(IPA Service)