On November 19, 2023, a ship named Galaxy Leader was seized by the Houthi rebel group in the Red Sea. Initially perceived as just another rebel attack, it has disrupted the global economy, causing havoc. Houthi rebels utilised drones and missiles to carry out attacks on commercial ships.
But why are these attacks happening in the Red Sea, and how can they affect global trade and the Indian economy?
Let’s understand!
What’s Happening?
The Houthi rebels, backed by Iran, targeted ships in the Red Sea to express solidarity with Hamas. Ships passing through the Red Sea are seen as supporting Israel. Given the ongoing Israel-Hamas conflict, the rebels declare that attacks in the Red Sea will continue until Israel ceases its actions against Hamas.
As a result, an attempt is being made by the rebels to disrupt international trade, crucial through maritime routes for the global economy.
Why is the Red Sea Crucial for the World?
Crossing the Suez Canal makes reaching Europe much easier. Before the construction of the Suez Canal, reaching Europe required a much longer route, increasing shipping time and fuel costs significantly. Therefore, the region is vital for international trade, and any issues in this area can affect economies and markets worldwide.
This image illustrates the importance of the Suez Canal for international trade.
Impact on the Indian Economy
The conflict in the Red Sea has already increased expenses for ships, affecting Indian importers. Rising shipping costs are impacting Indian import costs, especially in sectors such as leather, plastic, and spices. Additionally, the prices of major export items like Basmati rice are also increasing.
What’s in it for Investors?
If the conflict persists, investors may witness its impact on the market. Currently, India imports over 85% of its crude oil and more than 50% of its gas. Oil marketing companies like BPCL, HPCL, IOC, etc., may be affected due to this crisis.
What’s Next?
As 20% of India’s trade occurs through the Suez Canal, the country may face challenges in two aspects.
Oil: While India primarily imports oil from West Asia and Russia, a change in the route could affect the prices of the 40% of oil imported from Russia via the Suez Canal.
Transportation Costs: Shipping costs may increase up to 40%, affecting Indian exports and causing losses for companies exporting abroad.
In conclusion, these challenges in the Red Sea could impact India’s financial goals in the coming years.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The companies mentioned in the article are for information purposes only. This is not an investment advice.
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