Exporters may use other routes if Iran blocks Strait of Hormuz
NEW DELHI : The dramatic escalation in the Iran-Israel war with the entry of the US has aggravated the uncertainty over India’s foreign trade in goods, with the possibility of navigation in Strait of Hormuz and Red Sea getting disrupted.
As for overall exports, the impact is expected to be very limited as more than 90% of Indian shipments to its two biggest markets of US and Europe are using the longer route through Cape of Good Hope. Only 5-6% of traders started using Red Sea route recently after a period of relative calm, Director General of Federation of Indian Export Organisations (FIEO) Ajay Sahai said.
While the shipments to Europe, US and Africa can continue without any hassle , the conflict has the potential to disturb exports to the crucial market of West Asia, if the Strait of Hormuz which connects Persian Gulf and Gulf of Oman is blocked by Iran.
Sahai said there are alternatives to reach many of the markets in West Asia through ports on the nodes of India-Middle East- Europe Corridor (IMEEC) like Fujairah port in United Arab Emirates (UAE) on the gulf of Oman and Salalah port in Oman that can avoid Hormuz Strait. Only getting exports to Iraq would be difficult if the strait closes for shipping, he said, adding that another issue on the use of alternate ports would be their capacity to handle extra traffic.
The biggest challenge would be getting oil and natural gas from ports on the Persian Gulf. “Roughly 60–65% of India’s crude imports transit through the Hormuz Strait. Any blockade or military escalation in this vital maritime corridor would severely impact India’s energy security, drive up oil prices, and trigger inflationary pressures at home,” founder of Global Trade Research Initiative (GTRI) Ajay Srivastava said.
Further escalation of the conflict if Iran attacks US bases, as it has been talked about, things could become a little more challenging, Sahai said. Already it is quite a challenging time for logistics, insurance and regional supplies, he added.
Globally 20% of the world oil passes through Hormuz and there are fears that the crude oil prices could go up to $ 120 a barrel if that route is closed, This could set-off another round of economic challenges for India
The government is already exploring all possible alternatives for responding to the evolving situation, commerce ministry sources had said earlier. Ship reporting system is in place to monitor any incidents and freight and insurance rates are also being closely monitored.
At present, the immediate impact on bilateral trade with Iran and Israel remains modest—amounting to $1.2 billion in exports and $441.8 million in imports with Iran, and $2.1 billion in exports and $1.6 billion in imports with Israel.
A wider regional escalation could threaten India’s much larger trade with the broader West Asian region—including Iraq, Jordan, Lebanon, Syria, and Yemen—where Indian exports total $8.6 billion and imports stand at $33.1 billion, Srivastava said.
Source : FE
