Red Sea Crisis: Primary Concern Is Energy Cost

The commerce and economy of India might be significantly impacted if container traffic via the Bab-el-Mandeb Strait, a vital maritime route that connects the Mediterranean Sea to the Indian Ocean, is disrupted.

India uses this route for more than 50% of its trade and commerce, with this small strait accounting for the majority of its imports of LNG and crude oil. India uses this maritime route to sell its goods to Europe, the Gulf, and Africa.

Thirty percent of all container traffic and a significant portion of oil and gas vessel traffic travel through the Strait, which is one of the world’s main commerce routes. Major shipping companies, including Maersk, MSC (Mediterranean Shipping Company), Hapag-Lloyd, and Compagnie Maritime d’Affretement – Compagnie Générale Maritime, have been forced to avoid the Bab-el-Mandeb Strait due to recent attacks by Houthi militants on container ships traveling via this route, causing disruptions to global trade.

For India’s commerce with the Middle East, Africa, and Europe, the strait is essential. The blockade of the strait would cause supply chain disruptions in India, which would be detrimental to the country’s economy, according to Global Trade Research Initiative (GTRI) founder Ajay Srivastava. India may have to take longer routes around the Cape of Good Hope, which might result in higher energy expenditures. Higher insurance premiums and freight costs might result from increased risk, which would affect merchants.

After dropping as low as $73.24 last week, the price of a barrel of Brent crude oil has already surpassed $78. The British oil giant BP said on Monday that due to Houthi rebel assaults on ships in Yemen, it would temporarily reroute tankers to avoid the Red Sea.

The journey duration and expense will increase by 10–14 days and around 30% if the alternate route takes one via the Cape of Good Hope. The Federation of Indian Exporters Organization (FIEO) director general and CEO, Ajay Sahai, states that the risk premium for ships has increased, that maritime insurance for cargo is rising, and that a war risk surcharge is soon to be implemented. Sahai expressed optimism that the alliance will patrol the southern Red Sea to quickly return to normality, failing which supply chain disruptions would have an adverse effect on the world economy.

According to Srivastava, India should diversify its energy imports to lessen its dependency on the Bab-el-Mandeb Strait. This includes an increase in imports from Central Asia, Africa, and other Persian Gulf nations. Additionally, he says that India has to provide other routes, including the deepwater port at Iran’s Chabahar.