Why is it in the news?

• A surge in attacks on cargo ships by the Houthi militia in the Red Sea since November has significantly disrupted the vital maritime route linking Asia with Europe through the Suez Canal.

About the Red Sea Trade Route

• The Red Sea, extending from Egypt’s Suez Canal to the narrow Bab el-Mandeb Strait, serves as a crucial trade route for global shipping and energy supplies.
• The Suez Canal, operational since 1869, stands as one of the busiest canals globally, facilitating around 12% of global trade, with 23,583 ships using it in 2022.
• The Red Sea acts as a bridge between the East and West, offering a more direct and shorter maritime trade route connecting Europe, Africa, the Middle East, and Asia.
• The Suez Canal, connecting the Red Sea to the Mediterranean, is an essential artificial waterway that enhances global trade efficiency, reducing shipping times and costs.
• The region is a significant source of oil and natural gas, with the Red Sea playing a crucial role in transporting energy resources.
• The trade routes through the Red Sea contribute to the economies of countries along its shores by generating employment, stimulating economic activity, and fostering international relations.
• Control of strategic chokepoints such as the Bab el Mandeb and the Suez Canal holds implications for global trade and security.
• Political stability and cooperation among countries bordering the Red Sea are essential for ensuring the smooth flow of goods.

Impact on Indian Trade

• Major cargo shipping lines have decided to cease operations on this route, and even smaller feeder vessels have stopped plying in these waters.
• A wide range of commodities, including chemicals, plastics, and petrochemicals, are severely affected due to inadequate margins to absorb the increased freight costs.
• Almost 90% of cargo, both inbound and shipped from India to the western hemisphere, which used the Red Sea route, is now being rerouted through the Cape of Good Hope.
• Container Corporation of India reports that about 25% of its containers are being held back by Indian exporters due to the crisis.
• The longer route entails extra time, making imports costlier and necessitating improved inventory management.
• The increase in freight costs, potentially up to six-fold in some cases, coupled with longer voyage times, will be most keenly felt by low-value, high-volume cargo and perishables.
• India’s import dependence on crude oil and petroleum products was 87.6% based on consumption in the April-September 2023 period.
• The crisis in the Red Sea poses challenges to India’s energy security and may impact pump prices of essential fuels.

Global Response

• The UN has condemned Houthi attacks, emphasizing that no cause or grievance justifies attacks against freedom of navigation.
• The U.S. leads the multinational ‘Operation Prosperity Guardian’ to counter Houthi-led attacks, ensuring the safety of maritime traffic and promoting stability.

India’s Response

• India closely monitors the situation, with the Commerce Secretary engaging in discussions with officials and trade bodies.