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The escalating conflict in West Asia, marked by missile strikes and military operations, has created significant concerns for global trade, particularly impacting India's reliance on the crucial Red Sea shipping route. The conflict has increased the risk of disruptions to trade, with the potential for prolonged inaccessibility of the Red Sea route and significant rises in freight rates. The conflict's impact is already being felt, with Indian exporters experiencing a 9% decline in exports in August, largely due to a 38 per cent reduction in petroleum exports attributed to declining margins and rising shipping costs.
While India's trade with regional players like Saudi Arabia, UAE, Kuwait, and Qatar has seen a positive rise, the disruption in key shipping routes has led to a 15-20 per cent increase in shipping costs, severely impacting Indian companies exporting low-end engineering products, textiles, garments, and other labor-intensive goods. These disruptions have also negatively impacted sectors like machinery, steel, gems and jewelry, and footwear, despite an overall export growth to the European Union.
The conflict further complicates the progress of the India-Middle East-Europe Economic Corridor (IMEC) plan, aimed at creating a faster route connecting India to the Gulf region and Europe. This plan, designed to reduce reliance on the Suez Canal, now faces challenges in the wake of the war in West Asia. As the conflict continues to unfold, the impact on global and Indian trade remains uncertain. Prolonged disruptions in crucial shipping routes and the potential for heightened freight rates pose significant challenges. The development of alternative trade routes and strategies to mitigate the impact of the conflict on trade will be crucial in navigating these uncertain times.
Source: Iran-Israel war threatens global shipping routes – What’s next for Indian trade?