February 29, 2024

Amid recent attacks on ships in the Red Sea trade route in West Asia, tensions have risen for Indian oil importers and exporters of commodities such as basmati and tea. The attacks have been carried out by Yemen-based Houthi rebels, who are protesting Israel’s military offensive in Gaza. The US-led maritime security coalition has announced countermeasures, highlighting the importance of the route for world trade. The Suez Canal and Panama Canal also pose challenges to global trade, with the Panama Canal experiencing a 50% drop in shipping due to drought conditions. The disruption at these key shipping routes is expected to push up freight rates and impact global and Indian exporters. However, oil flows to India have been immune to attack in the Red Sea, with global shipping majors avoiding transit through the region. Despite the attacks, Goldman Sachs does not expect any significant impact on international oil prices, but freight rates for Indian shipments could surge by 25-30% if security concerns along the Red Sea route continue. This is troubling for Indian exports to the European Union, as slowing demand from the region has already impacted India’s labour-intensive sectors. The shipping giant Maersk is preparing to resume operations in the Red Sea, but may still divert ship traffic depending on evolving safety conditions.

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