India's Trade Faces Turmoil Amidst Red Sea Crisis

Bab el Mandeb Strait: A Strategic Chokepoint in the Red Sea Crisis

In the expansive waters of the Red Sea, a gathering storm poses a threat not only to the calmness of the sea but also to the delicate balance of worldwide trade, with India entangled in the turmoil. The conflict, driven by relentless assaults from Houthi militants based in Yemen around the critical Bab-el-Mandeb Strait, transcends regional tensions to become a menacing challenge for global commerce.

At its core, this crisis revolves around the strategic control wielded by Houthi rebels over parts of Yemen. Originating in the 1990s as a response to corruption, these rebels have evolved into a formidable force, drawing parallels with historical proxy conflicts. The unfolding situation showcases the geopolitical intricacies of the Red Sea and emphasizes its pivotal role in shaping India’s trade dynamics.

Proxy Conflicts and Shifting Alliances in the Red Sea Crisis

The roots of the Houthi rebels trace back to their emergence as an armed group in Yemen during the 1990s. Initially advocating for a moderate theological movement within the Zaidi Shia minority, their agenda expanded to combating corruption and opposing then-President Ali Abdullah. Drawing parallels with the historical role of the Taliban as a proxy army, it is evident that the Houthi rebels are currently pawns in Iran’s geopolitical maneuvers.

The conflict in Yemen is a multifaceted struggle, with the Yemeni government, backed by Saudi Arabia and the United States, confronting Houthi rebels receiving support from Iran and Hezbollah. Originally aligned against Israel, the rebels have shifted their targets from Israeli-bound ships to vessels of other nations, strategically applying pressure on these countries to intervene in Israel’s actions against Palestine.

The strategic control exerted by Houthi rebels over parts of Yemen, including the capital, poses a grave threat. The ability to obstruct the Bab el Mandeb Strait, linking the Mediterranean Sea to the Indian Ocean, holds the potential for disastrous repercussions on global trade. The Red Sea, a lifeline for international commerce, witnesses the transit of $1 trillion worth of goods annually, including 30% of all global containers, 7-10% of the world’s oil, and 8% of liquefied natural gas.

The Houthi rebel attacks have not only triggered a significant disruption in global trade, specifically through the Red Sea, but have also prompted a rerouting of ships to avoid the conflict zone. This has led to a staggering 40% drop in traffic over the last three weeks, escalating insurance costs, and raising concerns about a potential global shipping crisis, akin to the Panama Crisis.

India’s Dilemma: Surge in Shipping Costs and Export Threats

India, heavily reliant on the Red Sea as a crucial trade route to Europe and the West, now grapples with the repercussions of the Houthi attacks. Shipping costs for Indian goods to Europe and the U.S. have surged by 20 to 40%, and basmati rice export freight costs have skyrocketed from $600 to $2,000. The disruptions in traffic flow and increased insurance costs pose a threat to India’s exports, particularly to the European Union, its second-largest export destination.

As the Houthi rebel attacks persist, the intricate network of global trade experiences reverberations, extending their impact far beyond the conflict zone. India, situated at the nexus of rising shipping costs, export delays, and potential repercussions on crucial sectors, is advised to confront this crisis with heightened awareness. The economic think tank GTRI’s alert about a possible 60% surge in shipping costs serves as a clear reminder of the imperative for India to devise prompt and strategic solutions.

Global Trade Repercussions of the Red Sea Crisis: Extending Beyond the Conflict Zone

Multi-billion US dollars of India’s exports to the EU, the East Coast of the US, African countries, and certain Middle Eastern nations could be at risk if the situation in the Red Sea persists. This looming threat underscores the urgency for India to formulate swift and strategic responses, both diplomatically and economically, to safeguard its interests on the global trade stage.

In essence, the Red Sea crisis isn’t just a regional conflict; it’s a turbulent force disrupting the currents of international trade, and as India grapples with its consequences, a nuanced and proactive approach becomes imperative.

By Anamika Singh, CEO, StraCon Business Services