The union government is mulling on using alternate trade routes and has asked Export Credit Guarantee Corporation (ECGC) not to raise insurance premiums amid rising cost of shipping to Europe amid rising tensions in the Red Sea region, a senior government official said on Saturday.
ECGC, a wholly-owned government enterprise, which is mandated with boosting competitiveness of the Indian exports by providing them with credit insurance covers, had provided credit cover for exporters worth Rs 6.68 trillion in FY23.
This comes after Brent Crude, international oil benchmark, jumped 1 per cent after overnight air and sea strikes by the US and the UK on Houthi targets in Yemen following attacks on commercial vessels by the Iran-backed group.
The government official said that the commerce ministry had called an inter-ministerial meeting on January 17 where officials from five ministries — external affairs, defence, shipping and finance and commerce — will participate. The commerce ministry has also set up an internal strategic group, comprising additional secretaries of the ministry, to discuss global issues impacting the country’s trade on a daily basis and prepare a strategy so that India’s response can be quick and decisive.
“This Wednesday, we are holding an inter-ministerial consultation. We will be discussing the way forward,” the official said.
Due to these attacks, the shippers are taking consignments through the Cape of Good Hope, resulting in delays of almost 14 days and also higher freight and insurance costs. New trade routes are also being considered and “we will keep exploring our options if the problems at Red Sea escalate,” the commerce ministry official added.
“We are watching the situation very closely. There is some cost implication for our exports, but since there are inventories for almost a month only, if it escalates for long then it will be a major problem. We are worried,” the official added.
Reuters reported that the US and the UK warplanes, ships and submarines launched dozens of strikes across Yemen overnight, retaliating against Iran-backed Houthi forces for attacks on Red Sea shipping, widening regional conflict stemming from Israel’s war in Gaza.
The Indian Express earlier this month reported that freight rates to Europe – India’s second largest export destination – via the Red Sea region have almost doubled due to rising attacks along the crucial shipping route.
Global shipping giants Maersk last week decided to extend its diversion of vessels from the Red Sea for the “foreseeable” future, sparking fears of a sharp rise in freight and insurance cost for Indian products.
India, heavily reliant on the Red Sea route for crude oil and liquified natural gas imports and trade with key regions, faces substantial economic and security risks from any disruption in this area.
Approximately 65 per cent of India’s crude oil imports in FY2023, valued at $105 billion, likely passed through the Suez Canal.
