India Takes Measures to Navigate Red Sea Crisis Impact on Global Trade

27 Jan 2024 CW Team

The interministerial committee, headed by an additional secretary-level officer and comprising representatives from ministries of defence, shipping, and external affairs, convened last week to engage with exporters and logistics providers. Union commerce secretary Sunil Barthwal emphasized the committee's focus on ensuring the continuity of shipments amid the evolving crisis in the Red Sea region.

Despite India's exported inventories being sufficient for a month, officials underscored the dynamic nature of the situation, necessitating constant vigilance and updates. The Houthi forces in Yemen, supporting Hamas in Gaza, have been targeting cargo vessels in the Red Sea corridor, prompting retaliatory measures from the US and the UK. The disruptions have resulted in a significant reduction in the number of vessels utilizing the Suez Canal route, a crucial artery for global trade.

To mitigate the impact on Indian shippers, the government is exploring measures to cushion increased logistics costs. Union commerce minister Piyush Goyal, in a briefing assured that India is prepared to respond quickly should the situation escalate and prolong. Efforts include discussions with the Export Credit Guarantee Corporation Ltd to lower interest rates for exporters facing increased insurance costs due to the conflict. The government is also actively planning alternative routes and exploring ways to reduce container costs for shipments.

The World Bank highlighted the potential for the West Asia crisis, coupled with the war in Ukraine, to disrupt trade and lead to surging energy prices, with broader implications for global activity and inflation. The current trade disruption is noted as the most severe since the Covid-19 pandemic, causing a surge in the costs of moving goods by sea to levels not witnessed outside that period.

Red Sea crisis Interministerial committee Global trade disruption Shipping routes Suez Canal Indian exports Logistics costs Yemen's Houthi forces Export Credit Guarantee Corporation World Bank report Economic prospects Trade disruption

The Union government has established an interministerial group anchored at the commerce ministry to monitor the crisis in the Red Sea, where a violent regional spillover of Israel's conflict with Hamas is causing disruptions in global trade, including shipments from India. As a response to the escalating situation, most Indian exporters, including those dealing in merchandise and basmati rice, are opting for longer routes to access European and Middle-Eastern markets, circumventing the Cape of Good Hope. This shift has inevitably led to increased shipment costs, according to officials. The interministerial committee, headed by an additional secretary-level officer and comprising representatives from ministries of defence, shipping, and external affairs, convened last week to engage with exporters and logistics providers. Union commerce secretary Sunil Barthwal emphasized the committee's focus on ensuring the continuity of shipments amid the evolving crisis in the Red Sea region. Despite India's exported inventories being sufficient for a month, officials underscored the dynamic nature of the situation, necessitating constant vigilance and updates. The Houthi forces in Yemen, supporting Hamas in Gaza, have been targeting cargo vessels in the Red Sea corridor, prompting retaliatory measures from the US and the UK. The disruptions have resulted in a significant reduction in the number of vessels utilizing the Suez Canal route, a crucial artery for global trade. To mitigate the impact on Indian shippers, the government is exploring measures to cushion increased logistics costs. Union commerce minister Piyush Goyal, in a briefing assured that India is prepared to respond quickly should the situation escalate and prolong. Efforts include discussions with the Export Credit Guarantee Corporation Ltd to lower interest rates for exporters facing increased insurance costs due to the conflict. The government is also actively planning alternative routes and exploring ways to reduce container costs for shipments. The World Bank highlighted the potential for the West Asia crisis, coupled with the war in Ukraine, to disrupt trade and lead to surging energy prices, with broader implications for global activity and inflation. The current trade disruption is noted as the most severe since the Covid-19 pandemic, causing a surge in the costs of moving goods by sea to levels not witnessed outside that period.