Assessing the Implications of the Red Sea Conflict on the Indian Supply Chain: A Comprehensive Analysis

Abstract

The Red Sea, a vital trading route for India, is disrupted by the ongoing conflict between the Houthi rebels and Israel. This study aims to investigate how the dispute affects India’s supply chain in several different industries. The possible repercussions include restricted access to raw materials, delays and higher prices in maritime transportation, and concerns of energy scrutiny from disruptions in gas and oil. To lessen the impact on the economy we examine alternate trade routes and assess the potential effects on investors’ confidence. This study aims to examine and assess the diverse repercussions of the Red Sea War on the Indian supply chain offering insights on strategic planning, policy decisions and risk mitigation measures for the Indian government, businesses and stakeholders. The Red Sea crisis has had a multifaceted impact on different sectors of the Indian economy. In the healthcare sector, a huge number of medical supplies and prescription drugs which are transported via sea have seen a spike in the shipping cost due to rerouting which has disrupted the medical supply chain. On the other hand, there is no direct impact on the consumer sector; however, the increased freight prices and geopolitical concerns impact the wholesale price index which is expected to hike and influence the food grain prices and exports of basmati rice in particular owing to the well-established domestic supply chain. The FMCG industry is comparatively protected from the adverse effects of the crisis in contrast to industries such as agricultural and maritime foods. This crucial route, particularly affecting goods moving between Europe, North Africa, and the Middle East, historically used for nearly half of India's exports and a third of imports, is now deemed unsafe. Ships are being rerouted around Africa's Cape of Good Hope, leading to a 30% increase in transit times and a surge in shipping costs. Indian companies are feeling the heat – Arvind Ltd. faces lost revenue due to order backlogs, while exporters like Euro Fruits grapple with quadrupled freight costs and declining grape quality. The auto industry is also impacted, with companies like MG Motor India experiencing delays and rising logistics expenses. India’s energy, resources and industrial sectors have all been severely disrupted by the Red Sea crisis with critical exports including chemicals and petroleum products being heavily impacted. Since the Suez Canal handles a significant amount of India’s import of crude oil, rerouting owing to continual conflicts presents logistical difficulties and possible inflationary pressures. The government is actively engaging in efforts to mitigate these impacts by looking into alternative shipping lanes and providing assistance to affected exports. The possibility of delays and financial costs is still a major issue for businesses navigating obstacles relating to insurance premiums and logistical difficulties. To navigate these challenges, the Indian government is exploring a multi-pronged approach. Financial support in the form of direct subsidies, soft loans, and government-backed cargo insurance could help businesses offset increased costs and mitigate risks associated with delays and rerouting. Additionally, India is looking to diversify its trade routes by exploring alternative sources for crude oil and LNG imports, along with utilizing ports outside the conflict zone. Long-term solutions are also being considered, such as investing in the Northern Sea Route and expanding land transport infrastructure. Renewed focus on the India-Middle East-Europe Economic Corridor (IMEC) project could offer a comprehensive network connecting India, the Middle East, and Europe. By implementing these strategies, India can build a more resilient supply chain and minimize the long-term impact of the Red Sea conflict on its trade.