The conflict has disrupted shipping routes, may derail strategic projects and sharpened geopolitical divisions that India must now carefully navigate
It has been a year since the West Asian conflict erupted with Hamas’s October 7 attack in Israel. The attack provoked a massive Israeli military response, including airstrikes and ground operations. By October 10, Hezbollah, backed by Iran, was attacking Israeli positions along the northern border, leading to Israeli strikes against Hezbollah and Iranian targets in Syria.
The year-long conflict has destabilised the region, affected shipping routes, global energy markets and geopolitical alignments. All of this has profound implications for India’s trade and security in the region.
The conflict has severely disrupted shipping routes through the Red Sea and Suez Canal. Houthi militants, backed by Iran, have targeted vessels in the Red Sea, forcing ships to reroute via the longer and costlier Cape of Good Hope. This rerouting has increased the distance for shipments by 3,000 to 3,500 nautical miles, driving up fuel consumption and operating expenses.
By October 2024, the cost of shipping a 40-foot container from Mumbai to Amsterdam had risen by 45-65%, from $2,400 in September 2023 via the Suez Canal, to between $3,500 and $4,200 via the Cape of Good Hope. Additionally, transit times have increased by 10-15 days, eroding the competitiveness of Indian exporters, particularly those in labour-intensive industries such as textiles, garments and low-end engineering products.
India’s trade with countries directly involved in the conflict has plummeted. Exports to Israel fell sharply by 63.5%, while trade with Jordan and Lebanon decreased by 38.5% and 6.8%, respectively, between January and July 2024. While India’s exports to Iran increased by 15.2% during the same period, this growth may not be sustainable if the conflict continues to escalate. Overall, rising shipping costs due to disruptions in the Red Sea and Suez Canal are cutting into profit margins for Indian exporters in sectors like machinery, steel, gems and jewellery. India’s crude oil and petroleum imports have also dropped by 32.38% in August 2024 compared to the same month in 2023, driven by reduced demand from refineries due to lower European orders.
The conflict’s impact on India’s energy sector has been limited so far, as major oil producers like Saudi Arabia, the US and Russia remain outside the direct conflict zone. However, any prolonged disruptions to shipping routes could lead to higher oil prices globally, increasing costs for India’s fuel imports. The potential stabilisation of the Red Sea is possible if Israel neutralises Houthi rebels in Yemen, who have been a major source of disruption. Israeli strikes on Houthi positions have already begun, and if successful, could ease shipping disruptions and bring some relief to Indian trade.
The conflict threatens to derail long-term strategic projects like the India-Middle East-Europe Economic Corridor (IMEC), which aims to enhance connectivity between India and Europe via the Gulf. The instability in West Asia has delayed critical infrastructure development and prolonged conflict could keep the project on hold indefinitely. This uncertainty undermines India’s efforts to strengthen trade links with Europe through faster, more efficient transport corridors.
The conflict has sharpened geopolitical divisions, with Iran drawing closer to China and Russia while Israel remains backed by the US. India finds itself navigating these competing alliances carefully. To safeguard its long-term strategic and economic interests in West Asia, India must maintain its neutral stance, fostering balanced relationships with both Israel and Iran. This approach has allowed India to continue strengthening ties with neutral Gulf Cooperation Council (GCC) nations, such as Saudi Arabia and the UAE, where trade grew by 17.8% in early 2024 (January-July 224 over the previous year). These partnerships are crucial for protecting India’s trade routes and ensuring energy security.
India’s growing trade with neutral GCC countries like Saudi Arabia, the UAE and Qatar underscores the importance of these relationships. India should deepen its strategic and economic ties with these nations, focusing on energy security and regional stability. Leveraging the neutral stance of these countries will help India safeguard its interests without becoming embroiled in the broader conflict.
The conflict has highlighted vulnerabilities in India’s energy and trade dependencies. India should accelerate efforts to enhance domestic production of crude oil and reduce its reliance on foreign imports. Expanding its capacity for renewable energy, boosting manufacturing in critical sectors and promoting self-sufficiency in industries like electronics would help India better withstand global disruptions.
India must maintain active diplomatic engagement with both Israel and Iran to preserve its neutrality and protect its interests in the region. By positioning itself as a mediator or peace broker, India could strengthen its role as a stabilising force in West Asia, fostering goodwill and safeguarding its trade interests in the process.
India needs to work closely with its shipping industry to develop contingency plans for future disruptions. This could include securing alternative insurance arrangements, negotiating with international partners for smoother rerouting and ensuring that Indian ports are equipped to handle increased traffic from alternative routes.
As the West Asian conflict intensifies, India faces mounting challenges in safeguarding its trade routes, securing energy supplies, and navigating a complex geopolitical landscape. The ongoing Russia-Ukraine war and rising US-China tensions have also made global trade more challenging. India can protect its economic and security interests by adopting a well-planned strategy focused on diversification, neutral diplomacy and strengthening regional partnerships.
The writer is founder, Global Trade Research Initiative. Views expressed are personal.