Introduction

Houthi Militia Attacks: Since November, attacks by the Houthi militia of Yemen have rendered the Red Sea, a crucial marine route via the Suez Canal, unsafe for cargo ships.
Alternative Route: This has led to a significant rerouting of cargo, with ships now taking the longer Cape of Good Hope route, affecting global trade and increasing costs.

About the Red Sea

	Details
Location	Between Africa (Egypt, Sudan, Eritrea, Djibouti) and Asia (Saudi Arabia, Yemen).
Connection	Connects to the Indian Ocean via the Bab el Mandeb strait and the Gulf of Aden.
Length	Approximately 2,250 km long.
Width	Varies from 355 km at its widest point to 20 km at the Strait of Tiran.
Maximum Depth	About 7,254 feet (2,211 m) in the central median trench.
Unique Features	– One of the world’s saltiest bodies of water. – Notable for its rich ecosystem, including extensive coral reefs.
Climate	Generally hot and arid; surrounding desert and high evaporation rates contribute to its high salinity.
Economic Importance	Major shipping route; oil-rich region with significant petroleum deposits on the sea’s borders.

red sea

Shift in Shipping Routes: Following the attacks, about 90% of India’s western hemisphere cargo is being rerouted through the Cape of Good Hope.
Contractual Implications: The impact varies based on the type of buyer-seller contract, with some consignments being held up due to increased freight costs.
Freight Cost Surge: Freight costs have risen significantly, by up to six-fold in some cases, affecting all consignments, especially low-value, high-volume cargo and perishables.

Increased Import Costs: The longer transit time and crisis could lead to costlier imports and necessitate better inventory management.
Effect on Fuel Prices: The crisis might impact plans to reduce fuel prices in India, given the country’s high dependence on crude oil and petroleum product imports.
Tanker Market Dynamics: Despite increased freight rates for affected routes, there hasn’t been a widespread rerouting of tankers.

UN and US Stance: The UN condemned the Houthi attacks, and the US is seeking more support for ‘Operation Prosperity Guardian’ to ensure safe sea lanes.
India’s Monitoring: The Indian government is closely observing the situation, with the Commerce Secretary discussing potential impacts with officials and trade bodies.

Commodities Most Affected: Sectors like chemicals, plastics, and petrochemicals are severely impacted due to their inability to absorb freight hikes.
Alternatives for High-Value Goods: For high-value, low-volume commodities, airlifting is an option, but most affected goods are large in volume.

Continued Uncertainty: The situation in the Red Sea presents ongoing challenges for global and Indian trade, with no immediate resolution in sight.
Adaptation and Monitoring: Businesses and governments are adapting to these changes, with a focus on monitoring developments and mitigating impacts.
Long-Term Implications: The crisis underscores the vulnerability of global trade routes to geopolitical conflicts and the need for diversified shipping strategies.