Rising Red Sea tensions and its potential impact on India's export and oil trade

New Delhi, India

The Red Sea has been the centre of military escalation in the last few weeks with fears of the Israel-Hamas war spreading to neighbouring nations. Yemen's Iran-backed Houthi rebels have targetted commercial vessels in the Red Sea using missiles, drones and helicopters. They claim that the ships they are targeting are linked to Israel, but the major impact of this ongoing crisis has been on global trade as vessels are now avoiding this crucial route. 

The Red Sea, a seawater inlet of the Indian Ocean, lies between Africa and Asia and is a route that is fundamental for global supply chains. But recent escalations have raised fears that costs for certain goods could skyrocket. 

Red Sea shipping route 

The Red Sea connects the east coast of the United States with the far eastern region, and also the North Europe and Eastern Mediterranean, making it extremely important for shipping. 

The six countries bordering the Red Sea proper are, Saudi Arabia and Yemen on the eastern shore, and Egypt, Sudan, Eritrea, and Djibouti on the western shore. 

It is connected to the Indian Ocean in the south through the Bab al-Mandab Strait and the Gulf of Aden. On the other hand, the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez, which leads to the Suez Canal, are in the north. 

Image provided by S&P Global Commodity Insights. 

The route through the Red Sea shortens the travel time also. In the case of the Eastern Mediterranean, the time is shortened by about three weeks around one week to the US East Coast, and 10 to 14 days to northern Europe. 

Also read: Houthis go 'ballistic' in Red Sea after Netanyahu rejects Palestinian state 

What are the alternate routes? 

As an alternative, the shipping companies can opt for the far longer  Cape of Good Hope route along South Africa to reach the west. However, this would delay the journey by around two weeks and also incur extra costs - around $1.25 million per sailing depending on where it is going. 

Italian and French ports are worried about being bypassed, because ships steer away from the main Mediterranean route. "We are not observing a significant impact as of today but it's a concern," Christophe Castaner, chairman of Marseille port, told a press conference. 

S&P Global Commodity Insights data revealed that around 12 per cent of global trade passes through the Suez Canal - Bab al-Mandab, representing 30 per cent of all global container traffic. About 95 per cent of vessels have rerouted around the Cape of Good Hope, adding 4,000 to 6,000 nautical miles, and 14 to 20 days to journeys. 

Also read: Red Sea ship attacks: Inside disrupted shipping route through West Asia's 'gate of tears' 

Impact on India's exports to Europe

India's Commerce and Industry Ministry said recently that the Red Sea shipping crisis could impact India's exports to Europe the most as about 80 per cent of the outbound shipments to Europe take place through the Red Sea region. 

As quoted in media reports, a senior official said that the Indian government is considering other trade routes and has requested the Export Credit Guarantee Corporation (ECGC) not to raise insurance premiums due to growing shipping costs to Europe and rising Red Sea tensions. 

Impact on India's oil trade 

The S&P Global Commodity Insights data revealed that Russia still maintains its position as India's top supplier, accounting for over 35 per cent of India's total crude imports, despite Indian refinery appetite for Russian crude dipping in recent months compared with the first half of 2023. The recent slowdown can be attributed to a rise in Middle Eastern flows, weather-related issues at Russian ports, heightened refinery maintenance, and increased scrutiny on ships carrying Russian oil in the wake of sanctions after it invaded Ukraine. 

The data revealed, "Despite the current dip, it is anticipated that inflows will likely bounce back in the coming months. This resurgence is expected, as crude runs are projected to increase post-maintenance, especially with refining remaining robust and a need to meet seasonal demand growth." 

Watch: India's daring rescue of ship caught in Red Sea crossfire 

The S&P Global Commodity Insights data noted that, despite the Red Sea crisis, India's crude imports from Russia remain unaffected so far. According to CAS, as of December 27, the Red Sea route remains the preferred option for traders supplying Russian crude to Indian refiners. Notably, Russia, including the Caspian Pipeline Consortium, presently holds a substantial volume of oil at sea. 

Russia has approximately 112 million barrels of oil on water, with a minimum of 43.7 million barrels destined for India, the latest data from CAS revealed. 

Notably, 19.2 million barrels are positioned in proximity to the Indian subcontinent, covering the Arabian Sea, Indian Ocean East, and Southeast Asia, the S&P Global Commodity Insights said, further adding that in the case of any disruptions, refiners or traders have the option to utilise these volumes to sustain refinery operations.