Global Rice News

Red Sea Drone Attacks: Implications for India and Global Economy

The recent drone attacks in the Red Sea, carried out by Yemen-based, Iran-supported Houthi terrorists, have serious implications for India and the global economy. These attacks have targeted cargo ships from nearly 35 countries, including India. One such attack took place on the Indian merchant navy ship MV Chem Pluto, which was carrying crude oil from Saudi Arabia to India. The attack occurred 200 nautical miles away from the western coast of Gujarat, India, in the Arabian Sea. The Red Sea route is vital for global trade, as 10% of trade flow and 30% of container traffic pass through this route. The international community needs to find a swift solution to this problem, as prolonged attacks can have catastrophic consequences for global trade.

The United States has blamed Iran for the attack on the Indian cargo vessel, while Iran has denied these allegations. India, on the other hand, has responded cautiously by targeting the Houthi militants without directly accusing Iran. The attackers claim that these attacks are in protest against Israel’s military offensive in Gaza.

The attack has both security and economic implications for India, as 95% of India’s trade by volume and 68% by value moves through ocean routes. India has always supported the free movement of commercial ships and has taken these attacks seriously. The Defence Minister has issued a stern warning, stating that India will track down those responsible for the attacks, even from the depths of the seas. To ensure the security of commercial sea traffic, India has deployed four state-of-the-art warships and is conducting regular reconnaissance flights in the Arabian Sea.

The Red Sea route is the shortest route from Asia to Europe and has a significant impact on India’s trade with Africa, the Middle East, and the European Union. The route’s importance has further increased due to drought conditions in the Panama Canal. Ships traveling from Asia to the USA are being forced to use the Suez Canal instead of the Panama Canal, which has caused their journey time to increase by six days.

The attacks by the Houthis have led many shipping companies to suspend all Red Sea shipping routes via the Suez Canal. Instead, they are rerouting their ships to go via the Cape of Good Hope in South Africa. However, this alternative route adds 12-14 days of sailing time and increases freight costs by 30-40%. Consequently, prices of goods are likely to rise, posing a challenge for customers. Additionally, insurance premiums are expected to increase due to the heightened risk.

The disruption at the Red Sea route will adversely affect Indian exports to Asia, North America, Africa, and Europe. Agriculture exports will be particularly impacted, as shipments will need to be rerouted through the Cape of Good Hope, leading to a 10-20% increase in prices of Indian agricultural products. Countries around the Red Sea, such as Saudi Arabia, Egypt, Jordan, Ethiopia, Israel, and Eritrea, will be the most affected, as their sailing time using the alternate route will significantly increase. For example, Saudi Arabia is the largest importer of Indian basmati rice, and the increase in freight costs has already had a significant impact on rice exports.

Tea exports from India to Europe and the US have also been severely affected, with exporters facing massive losses due to the rise in shipping costs caused by the Red Sea crisis. Importers from these regions may turn to Kenya instead of India for their tea supply. This situation has raised concerns among Indian exporters of agriculture commodities.

Non-agricultural, labor-intensive exports like textiles, gems, and jewelry will also be impacted by the Red Sea attacks. India is the largest exporter of gems and jewelry in the world, with major importers in the United Kingdom, United States, United Arab Emirates, Israel, and the Netherlands. The attacks could influence the demand for Indian handicrafts in these countries.

The Red Sea attacks will not only affect Indian exports but will also lead to a rise in prices of imports such as crude oil and machinery. India imports 84% of its crude oil needs from various countries, and any increase in crude oil prices can lead to overall price rises in the country. While the impact on crude oil shipments may be minimal since they don’t pass through the Red Sea route, the import of other chemicals and products transported through the Suez Canal route will see a rise in prices. This escalation in prices can create challenges for Corporate India, especially for its growth and investment plans.

Moreover, the geopolitical ramifications of the Red Sea attacks cannot be ignored. India’s growth trajectory has faced opposition from various countries, such as China and Iran. China’s proximity to Iran and India’s growing relationship with the United States can potentially lead to reactions from these countries. India needs to be cautious in the Arabian Sea to counteract the growing influence of China through countries like Pakistan and Iran.

Any disruption in maritime transport is a significant concern for the global economy, as over 80% of global goods trade relies on sea transportation. Prolonged attacks on the Red Sea route can result in supply chain problems and hinder the growth of developing countries like India. The US-led maritime security coalition has already announced countermeasures, indicating the route’s importance for world trade. The recent shipping crisis in the Red Sea adds to the economic challenges faced by the world, potentially worsening economies further.

Source: Daily Excelsior