A series of attacks on cargo ships in the Red Sea by Yemen’s Houthi militia since November has led major cargo shipping lines to abandon the quickest marine route linking Asia with Europe through the Suez Canal. The Houthi attacks have made the route unsafe, forcing freighters to take a longer transit around the Cape of Good Hope in Africa’s southern tip. This diversion has resulted in both increased costs and extended delivery times for shipments, compounding the challenges faced by global trade in the aftermath of the pandemic, amid the Russia-Ukraine war and a global economic slowdown.
Impact on Global Trade
The attacks have prompted a significant shift in shipping routes, with almost 90% of western hemisphere cargo, both inbound and shipped from India, that previously traversed the Red Sea, now rerouted through the Cape of Good Hope. According to Ajay Sahai, the Director-General of the Federation of Indian Export Organisations, this redirection affects shipments to Europe, the U.S. East Coast, and even countries in North Africa. The remaining 10% of Indian import or export cargo is either stagnant or utilizing alternative transit options.
Economic Fallout for India
The economic impact of this disruption is substantial for India, potentially resulting in a loss of around $30 billion in total exports for the current fiscal year. The Research and Information System for Developing Countries, a New Delhi-based think tank, estimates a 6.7% drop in Indian exports based on the previous fiscal year’s total of $451 billion. The Red Sea crisis has led to a surge in container shipping rates, prompting exporters to withhold shipments.
Government Response and Naval Actions
Prime Minister Narendra Modi’s government is actively engaged in discussions with export promotion councils to safeguard trade transiting through the troubled route. In response to the heightened threats, India has deployed a warship to the Arabian Sea, successfully rescuing a hijacked vessel near Somalia’s coast.
Seeking Alternatives
The Bab-el-Mandeb Strait, a critical trade route connecting the Mediterranean Sea and the Indian Ocean, faces heightened tensions due to recent attacks by Houthi militants. India, heavily reliant on this route, is urged to explore alternative trade routes to mitigate potential disruptions. The economic think tank GTRI suggests developing alternative routes, such as the deep-water port in Chabahar, Iran, to safeguard India’s trade with the Middle East, Africa, and Europe.
Navigating New Horizons
In a significant stride towards bolstering maritime cooperation, the Union Minister of Ports, Shipping & Waterways and Ayush, Shri Sarbananda Sonowal, held a pivotal meeting with Mr. A.O. Chekunkov, the Minister of the Russian Federation for the Development of the Far East and the Arctic. The meeting, which took place at the Pavilion of Kamchatka Territory in Vladivostok, Russia, focused on enhancing maritime communication between India and Russia, exploring transport corridors like the Northern Sea Route (NSR) and the Eastern Maritime Corridor (EMC) from Vladivostok to Chennai. A landmark decision emerged as both nations agreed to facilitate the training of Indian seafarers in Polar and Arctic waters at the renowned Russian Maritime Training Institute in Vladivostok. Minister Sonowal emphasized the deep historical roots and shared interests between the two nations, lauding collaborative efforts in key Russian ports. Recognizing the economic prospects, India expressed eagerness to explore partnership opportunities in the development of the NSR, envisioning enhanced connectivity and trade. Both leaders articulated mutual commitment to economic benefits, planning a Russian delegation’s visit to Chennai for strategic discussions in October. The NSR was positioned not just as a regional but as a global transport initiative, promising economic gains for Russia and non-regional states, notably India.
India and Iran are intensifying efforts to operationalize the International North-South Trade Corridor (INSTC) to enhance trade ties with Russia. Mohammad Miri, an advisor to the Chabahar Free Zone in Iran, revealed plans for a trial shipment from Russia to India in the next 6-8 months via the strategically important Chabahar Port. The INSTC, conceived in 2001 to strengthen economic connections between India, Central Asia, and Eastern Europe, faces challenges due to sanctions on Iran and Russia. Despite obstacles, a high-level ministerial meeting is scheduled in January 2024 in Chabahar to advance operationalization, addressing trade and geopolitical complexities.
In the geopolitically charged region of Çanakkale, along the banks of the Dardanelles, a historical crossroads, a new economic corridor is causing tensions between Greece and Turkey. The India-Middle East-Europe Economic Corridor (IMEC), announced during the G20 meeting, aims to connect Mumbai and Mundra to the Mediterranean via the UAE, Saudi Arabia, Jordan, Israel, and Greece. While Greece sees an opportunity to be “India’s gateway to Europe,” Turkey, led by President Erdogan, opposes the project, citing concerns about disputed waters and the exclusion of Turkey as a vital transit hub. The corridor’s sea route, passing through contentious areas, adds fuel to longstanding Greek-Turkish maritime disputes, further complicating the strategic landscape in the Eastern Mediterranean. The project, seen by some as a tool to reshape regional alliances and counterbalance China, faces challenges, with Turkey emphasizing its indispensable role in regional connectivity and trade routes.
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