India’s rice trade at risk in Red Sea attacks

The Houthi attacks on the Red Sea have disrupted the supply chain, hitting commodities like India's famous basmati rice variety. Repeated attacks on Indian ships on the Red Sea have put India's lucrative rice trade at risk. Iran-backed Houthi rebels have been launching strikes on cargo vessels, including some bound for Iran, since mid-November 2023 as part of a broader strategy to disrupt global supply chains.

Delhi fears basmati rice exports

New Delhi worries that its exports of basmati rice, which are worth USD$3.97 billion in export earnings (for the period April-December 2023), could be hit. During an official visit to Tehran in November 2023, Indian External Affairs Minister S Jaishankar expressed to his Iranian counterpart that the attacks were "...a matter of great concern to the international community" and "obviously, they also directly affect India's energy and economic interests.

Jaishankar stated, "No party benefits from this fraught situation and this should be recognized." In their joint statement, Jaishankar and Iranian Foreign Minister Amir-Abdollahian perceived the Houthi attacks as a noticeable rise in threats to the safety of maritime commercial traffic in this crucial part of the Indian Ocean.

During Prime Minister Narendra Modi's February 13 deliberations with United Arab Emirates President Sheikh Mohammad bin Zayed Al Nahyan, they highly considered the Houthis' unexpected strikes against Indian shipping on the Red Sea. This took place against the backdrop of the broader geopolitical situation in West Asia.

The Houthis based in Yemen are not only impacting global trade and oil prices significantly through their attacks on Red Sea shipping, but also influencing geopolitics. In response, the US and India quickly deployed their navy resources to protect shipping lanes and ensure the safety of commercial vessels against the larger backdrop of the Israel-Hamas conflict.

Red Sea critical for trade

The Houthis stated that they perceived Israel's unbalanced military response to the Hamas attacks on October 7 as retaliation, particularly in Gaza. The Red Sea serves as a critical conduit for global supply chains and international commerce. It links with the Mediterranean through the Suez Canal, which UNCTAD estimates held responsibility for 10-15 percent of global trade in 2023, including oil exports. Estimates also suggest that 25-30 percent of global container shipping volumes pass through the Suez.

The Indian Navy has remarkably grown India's blue water capabilities, as demonstrated by their swift action against Somalian pirates from 2010 to 2024. New Delhi aims to assume a more active oceanic role to protect its shipping and supply chain interests.

Like all major regional economies, the financial effects of the Houthi attacks have not left India immune, especially in a climate of steadily rising shipping costs. Between November 2023 and January 2024, freight costs rose by 144 percent from Shanghai to Chennai. Similarly, between September 2023 and January 2024, freight costs in some sectors, such as pharmaceuticals and cars, rose 40-50 percent from India to the US and Europe.

Basmati exports affect global markets

Over one-third of India's basmati export production significantly affects West Asia, Europe, North Africa, and North America as it is shipped via the Red Sea. 50 percent of India's overall exports come from these regions. Consequently, the alternate route via the Cape of Good Hope has increased shipping costs.

Just over a month after the Houthi attacks started, people feared that the price of basmati export could increase by as much as 20 percent. Although the Indian government didn't anticipate the basmati demand to suffer, officials warned that a continued disturbance on the Red Sea could escalate prices further.

Rising oil and basmati prices are attracting all eyes, but disruptions to other areas like tea, spices, fruits, and buffalo meat are impacting exporters' bottom lines. Reports of fertiliser, sunflower oil, machinery parts, and electronic goods imports are experiencing delays to India. This, in turn, can potentially hit consumers' pockets.

India’s concern over disruption in the global supply chain must be understood in the context of the overall international economic impact. 

In January 2024, the transit of oil tankers through the Suez Canal dropped 23 per cent compared to November 2023. The rerouting of petroleum products and cargo via South Africa also caused a significant increase in transit time — as much as 10-14 days. Additionally, costs increased by 30 percent.

The Israel-Hamas conflict in October 2023 had already caused shipping rates from North Asia to Europe to rise, and it impacted other routes.

Houthi attacks impact global economy

A JP Morgan report stated that core goods inflation could increase by 0.7 percent and overall inflation could rise 0.3 percent, if the Red Sea tumult and the spike in container shipping costs continued.

The growing realisation is that the Houthi attacks are posing a serious challenge to the global economy, especially during the current geopolitical crises in Ukraine and Palestine.

On February 12, while speaking at the World Government Summit in Dubai, IMF Director Kristalina Georgieva and World Bank Chief Ajaypal Banga flagged the Red Sea attacks as a threat to the world economy. The US, which has a significant stake in the Red Sea, has impressed on China to make the Houthis show restraint.

China conveyed to Iran that continued Houthis' Red Sea attacks could impact economic ties between Beijing and Tehran. However, some analysts suspect that China is merely preserving its own Red Sea interests, thereby limiting its intervention degree.

Different states have responded in various ways to the Houthi attacks - they have found alternate trade routes or used diplomacy - however, no tangible solution has emerged yet. Likely, India will also experience significant impact. It remains uncertain how India will mitigate the economic damage while simultaneously seeking a diplomatic solution.

This content is originally published under the Creative Commons license by 360info™. The Ground Report editorial team has made some changes to the original version.

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