• Global trade is the lifeblood of the modern world, keeping shelves stocked and factories humming.
• In recent times, critical maritime routes like the Red Sea and the Panama Canal are facing disruptions that could significantly affect over a third of global trade.
• This looming crisis has emerged from a series of attacks on ships traversing the Red Sea.
• Particularly affecting a ship en route to India, causing tensions among oil importers and exporters dealing in commodities like basmati and tea.
• The Red Sea attacks, attributed to Yemen-based Houthi rebels, are a response to Israel’s military actions in Gaza.
• These disruptions underscore the significance of these routes for global trade.
• Exacerbating concerns alongside existing challenges such as slowing demand in Western markets and China’s property crisis.
• Which has led to a 50% reduction in goods trade forecast by the World Trade Organization (WTO) for 2024.

Understanding the Red Sea Ripples

• Drone attacks in the Red Sea, notably on the MV Chem Pluto bound for India, raised concerns among Indian oil importers and exporters of goods like basmati and tea.
• The attacks, Yemen-based Houthi rebels, stem from conflicts with the Yemeni government.
• And are linked to protests against Israel’s military actions in Gaza.
• The resulting tensions have raised concerns globally, leading to swift countermeasures by a US-led maritime security coalition.

Impact on Global Trade Routes

• The Red Sea and the Panama Canal serve as vital arteries for international trade.
• Any disruptions here cause ripples felt worldwide.
• Over 80% of global goods trade is conducted through maritime routes.
• The blockages force ships onto longer alternate routes, driving up freight rates and complicating delivery schedules.

Implications for India and Global Markets

• For India, the disturbance at the Red Sea could inflate the prices of agricultural products by 10 to 20%.
• Shifts in shipping routes, diverting through the Cape of Good Hope, would contribute to longer transit times and increased costs.
• • This turmoil arrives at a time when the West faces higher interest rates to combat inflation, potentially impacting global and Indian exporters’ demands.

Why is Trade via the Panama Canal slowing?

• The Panama Canal’s woes compound the global trade difficulty, with shipping via the canal falling by over 50% due to drought conditions.
• Ships rerouted from Asia to the US through the Suez Canal take six extra days, exacerbating delays and logistical challenges.
• Panama is grappling with an unprecedentedly dry rainy season, heightening worries of extended canal holdups.
• To expedite transit through the Panama Canal, LNG vessels engage in high-priced auctions.
• In early November, one vessel paid almost $4 million for an open slot.
• Forecasts indicate a potential halving of Very Large Gas Carriers transiting the canal by February 2024, raising concerns of a complete halt by January.

Impact on Oil Flows and Freight Rates

•  Global oil and petroleum product flows have fallen due to the Red Sea attacks, causing oil prices to spike by over 5%.
• However, Indian oil imports from Russia, perceived as Iran’s ally, have remained immune.
• The disruptions have prompted global shipping firms to impose war risk surcharges.
• Potentially leading to a surge of 25-30% in freight rates for Indian shipments to Europe and Africa.

Future Outlook and Potential Resumptions

• During these challenges, the deployment of a US-led coalition in the Red Sea offers hope for restoring shipping operations.
• Yet, uncertainties persist, prompting companies to consider continued ship traffic diversions based on evolving safety conditions.

Conclusion:

The Red Sea is facing attacks from Yemeni rebels, which has caused shipping companies to take longer routes and raise prices. The Panama Canal is experiencing a drought, which is limiting the number of ships that can pass through. These disruptions could have a significant impact on India, as they could lead to higher prices for agricultural products and oil.

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References:

• Red Sea [1].