India’s Exports and Imports May Hit from the Ongoing Red Sea Crisis

14 February 2024

Main Highlights

         Red Sea crisis impact on India’s trade which accounts for 50% of the country’s exports and 30% of imports.

         The demand for India’s basmati rice from the Middle East, the United States and Europe is likely to hit.

          Like basmati rice, chaos in the Red Sea is disrupting shipments of other products as well including tea, spices, and buffalo meat.

          Imports of fertilisers, sunflower oil, machinery components and electronic goods are also likely to get disrupted from the Red Sea attack.

India is facing an impact of the ongoing crisis around the Red Sea shipping route. The country is heavily reliant on the Red Sea route through the Suez Canal for its trade of goods with global regions, particularly Europe, North America, North Africa, and the Middle East. These regions accounted for about 50% of India’s exports and about 30% of imports. Let’s understand how Red Crisis may impact on India’s exports and imports of commodities.

Houthi rebels have been carrying our missile and drone attacks on cargo ships in the Red Sea since November, actions they say are in response to Israel’s war on Gaza. Retaliatory strikes to aid the safe movement of ships by a US-led coalition have not stopped the Houthi assaults.

Demand for India’s basmati rice from the Middle East, the United States and Europe

Demand for India’s basmati, the long-grain aromatic rice, from traditional buyers in the Middle East, and the United States has dropped in October 2023, however that from Europe increased slightly in the same month. Overall, India’s exports of basmati rice to the world declined in September and October of 2023. The reason is the escalating tensions in the Red Sea, the shortest and most efficient trade route for ships moving from Asia to Europe.

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India, the world’s biggest rice exporter, ships more than 4.5 million tonnes of basmati rice to the world annually. About 35% of about 7 million tonnes of production is exported to Europe, North America, North Africa, and the Middle East through Red Sea.

Attacks by Iranian-backed Houthis from Yemen on commercial vessels passing through the Red Sea have forced shippers to avoid one of the world’s most crucial trade routes. The alternative longer route around the Cape of Good Hope on the southern tip of Africa has added more than 3,500 nautical miles (6,500 km) to the journey and close to a half-month of sailing time to each trip, significantly increasing shipping coasts.

Indian exporters of basmati rice face challenges in shipping as freight costs have shot up as high as five times with an increase in insurance premiums, shortage of containers and longer transit time. According to a report, some companies have kept their inventories at various ports or processing units and others have sold in the domestic market, resulting in a fall in prices by about 8% in the local market.

India’s exports of other commodities also hurt from Red Sea crisis

Like basmati rice, chaos in the Red Sea is disrupting shipments of other products as well including tea, spices, and buffalo meat. This has raised concern that the unrest will lead to supply chain disruptions and contraction of trade, and halt a slowdown in food inflation.

India’s buffalo meat export is hurt from the Red Sea crisis. The country is one of the leading buffalo meat exporters. About 60% of India’s shipments go through the Red Sea to North African countries and Russia.

Similarly, marine items including shrimps and prawns can also see a significant impact as around 80% of the production is exported, and over half of it through the Red Sea. Their perishable nature and lean margins make exporters vulnerable to increasing freight costs and competitive pressure from Latin American suppliers. 

India’s imports also disrupted due to Red Sea attack

Imports of fertilisers, sunflower oil, machinery components and electronic goods are also likely to get disrupted from the Red Sea attack. The supply of sunflower oil has become tight for India, the world’s biggest importer of the vegetable oil. As most of the vessels from Russia and Ukraine are being rerouted through the Cape of Good Hope, freight costs have increased by 35% and transit time increased by 15 days. Similarly, shipments of fertilisers have been delayed and logistics costs have risen.

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However, there is no disruption in oil flows even as the Red Sea is one of the key routes for oil shipments for India which imports around 80% of its crude oil needs. Russia emerged as one of the biggest crude oil suppliers to India in 2023, accounting for more than one-third of its imports. According to a report, unlike other sectors, there is no diversion of Russian vessels carrying crude oil bound for India through the Red Sea.

Exports from Kolkata port, a gateway to eastern India, are facing challenges including government’s rice export ban, geopolitical tension, and skyrocketing ocean freight costs. As a result, the trade activities are likely to get slow. Freight charges have gone up since December last year due to the escalating conflict in the Red Sea, forcing Indian exporters to halt their shipments.