Kolkata: After the Strait of Hormuz, here is another strait that could be turnout to be another chokepoint for world trade causing untold misery to India. This time it is a lesser known stretch of water that connect the Red Sea to the Gulf of Aden, through which any vessel travelling between Asia and Europe through the Suez Canal has to pass. It is a direct offshoot of the West Asia conflict and Tehran has recently instructed the Houthis to get ready to close this stretch known as Bab el-Mandeb if the US hits critical infrastructure of Iran.
International Monetary Fund data indicate that 12-15% of the global maritime cargo movement takes place through the Suez Canal-Red Sea corridor and constitutes one of the most heavily-used shipping routes. Virtually everything from energy supplies to chemicals, electronic goods to agricultural products moves through this route from west to east and from east to west.
Vessel movement through this route was disrupted in 2024 by Houthis when Israel struck Gaza. IMF data indicate that there was a 50% drop in traffic through the Suez Canal. Ships had to travel via the Cape of Good Hope around the southern tip of Africa and traffic jumped by about 74% through that route. Trade becomes far more expensive and delivery times rise by a big margin, which has to be borne by the eventual end user.
If Bab el-Mandeb is closed India could face double trouble. It would disrupt both general export-import as well as deliver an energy shock. This route helps India’s general merchandise trade with Europe, the volumes of which will only rise with the FTAs the government is striking with various European countries and blocks. Since about four-fifths of Indian trade with European countries take place through this route, exporters and, eventually, the economy would bear the brunt if the tsrait is closed. Both big and small exporters will suffer but the latter will suffer more since they have less deeper pockets to absorb sudden costs.
In 2024 Bloomberg reported that an assessment by the Research and Information System for Developing Countries estimated that if vessel movement through this route is disrupted for a prolonged period, it could shave around $30 billion from India’s exports.
India would also face a squeeze on the energy supply front since a lot of the crude oil that comes from Russia’s Baltic ports and is ferried through the Mediterranean, the Suez Canal and the Red Sea. In the 2024 disruptions, cargo from Russia had to move around the southern tip of Africa. Obviously they took far more time and cost to be delivered. In a repeat of such a scenario, freight rates would rise and tanker availability would shrink. Even if all other factors remain constant, the cost of crude reaching Indian refineries would rise.
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Avijit Ghosal has been writing on topics of business, industry and investment for the past three decades. He also writes on the broad economy, infrastructure and issues in banking. He has worked for economic dailies such as the Business Standard, The Economic Times, business magazines such as Business Today, English broadsheet the Hindustan Times and Bengali daily Anandabazar Patrika before joining TV9 Network.