Hindu Editorial Analysis : 27-February-2024
The ongoing crisis in the Red Sea has significant economic implications, particularly affecting global trade routes. As shipping costs surge, there is an urgent need to explore alternative paths for transporting goods.
Overview of the Crisis
Since mid-November 2023, Houthi rebels in Yemen have escalated attacks on commercial vessels in the lower Red Sea. These actions are believed to be a reaction to the ongoing conflict in Gaza. The Bab el-Mandab Strait, located between Yemen and Djibouti, is crucial for global trade. This narrow passage is one of the busiest points for cargo and oil transit, with approximately 12% of international merchandise trade relying on it.
Impacts on Global Shipping
The attacks have forced major shipping companies to change their routes, opting for longer journeys via the Cape of Good Hope. This re-routing has several consequences:
- Increased Shipping Costs: Ocean freight rates have soared.
- Higher Insurance Costs: The risks associated with the Red Sea have led to inflated insurance premiums.
- Longer Voyage Times: Ships now take more time to reach their destinations, causing delays.
- Product Shortages: The increased travel time has resulted in shortages of goods in markets worldwide.
- Rising Consumer Prices: As shipping costs rise, businesses pass these expenses onto consumers, leading to higher prices for everyday commodities.
In response to these challenges, China is promoting its China-Europe freight trains as an alternative route under its Belt and Road Initiative (BRI).
Impact on India
India heavily relies on the Red Sea route for trade with Europe and North Africa, accounting for:
- 24% of Exports: A significant portion of India’s exports passes through this route.
- 14% of Imports: Imports from these regions are also affected.
In the fiscal year 2022-23, India’s trade with Europe and North Africa reached $189 billion and $15 billion, respectively. However, growing concerns over security have led to a decrease in Indian shipments. According to the Federation of Indian Export Organisations (FIEO), about 25% of cargo ships are being held back due to fears of attacks.
Concerns and Challenges
Despite the severity of the situation, there is a lack of attention and investment aimed at securing the shipping corridor. Additionally, the ongoing Israel-Palestine conflict has stalled the normalization of relations between Arab countries and Israel, which is crucial for multi-nation initiatives.
Another pressing issue is the vulnerability of the Strait of Hormuz. This strait is vital for trade in the region and is under threat due to Iran’s proximity and influence. The risk of disruptions in this area poses a significant challenge to global trade.
Why In News
The Red Sea crisis has caused significant economic implications, such as a surge in container ship costs, highlighting the urgent need to revisit alternate routes for global trade and ensuring the resilience of supply chains in the face of geopolitical tensions.
MCQs about Red Sea Crisis
- What has prompted the Houthi rebels in Yemen to increase attacks on commercial shipping vessels since mid-November 2023?
A. Economic sanctions on Yemen
B. Israel’s bombardment of Gaza
C. A territorial dispute with Djibouti
D. International maritime laws
- What percentage of international merchandise trade passes through the Bab el-Mandab Strait?
A. 5%
B. 10%
C. 12%
D. 15%
- Which alternative route is China promoting as a solution to the challenges posed by the Red Sea crisis?
A. The Suez Canal
B. The Cape of Good Hope
C. China-Europe freight trains
D. The Panama Canal
- How much of India’s exports and imports are affected by the Red Sea route in trade with Europe and North Africa?
A. 10% of exports and 5% of imports
B. 24% of exports and 14% of imports
C. 30% of exports and 20% of imports
D. 50% of exports and 40% of imports
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