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Red Sea And Ship Of State

Context: Houthi attacks in the Red Sea cripple 80% of India’s Europe trade, doubling costs and delaying shipments. The government explores alternatives and seeks insurance relief amid global trade concerns.

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Houthi Attacks – A blow to India’s European trade

  • Disruption of Major Trade Route: Approximately 80% of India’s exports to Europe pass through the Red Sea region. The attacks have led to increased insecurity and uncertainty in this major trade route, causing disruptions.
  • Increased Transportation Costs and Delays: Due to the crisis, many vessels have rerouted around the Cape of Good Hope, adding 4000 to 6000 nautical miles and 14 to 20 days to journeys. This rerouting has led to increased transport charges and additional congestion surcharges, raising the overall cost of shipping.
  • Impact on Indian Exports: The increase in freight costs, insurance premiums, and extended transit times are expected to make exported goods, especially lower-value products like agriculture and textiles, more expensive and less competitive in European markets.
  • Slowdown in EU Trade Amid Global Tensions: The ongoing Russia-Ukraine war has already slowed down India’s goods exports to the EU, which accounts for over 15% of India’s total goods exports. The added disruption in the Red Sea exacerbates this slowdown.
  • Environmental Trade Measures Concerns: The introduction of environmental-related trade measures, like the carbon border adjustment mechanism and EU’s deforestation law, are anticipated to further impact India’s exports.

Government Response and Strategies

  • The Indian government is considering alternative trade routes to mitigate the impact of these disruptions.
  • The Export Credit Guarantee Corporation (ECGC) has been advised not to raise insurance premiums despite the rising cost of shipping.
  • An inter-ministerial meeting involving officials from external affairs, defence, shipping, finance, and commerce ministries was convened to formulate a response plan.
Global Implications
The Red Sea region is critical for 30% of global container traffic and 12% of global trade. The disruption affects not just India but global trade dynamics.

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