How the Red Sea War will affect the Indian Economy? EXPLAINED IN 8 mins

Summary

The video explores the impact of escalating attacks by Yemen's Houthi rebels on shipping in the Red Sea, a vital global trade route. These attacks have disrupted commercial shipping, including vital exports from India, such as rice, while raising insurance costs and delaying deliveries. The Red Sea's strategic importance is highlighted, connecting Europe and Asia and handling trillions of dollars worth of goods annually. The video also examines the potential global economic consequences if the conflict intensifies, including rising oil prices, inflation, and the risk of broader geopolitical tensions. The analysis provides insight into how the Red Sea war is affecting global trade and Indian businesses.

Takeaways

• 😀 The Red Sea is experiencing escalating tensions due to attacks on commercial ships by Yemen-based Houthi rebels.
• 😀 Houthi rebels, backed by Iran, are targeting ships to exert pressure on countries like Israel, the US, and their allies.
• 😀 The Red Sea is a critical global trade route, connecting Europe and Asia, with over $1 trillion in goods passing through annually.
• 😀 Disruption in the Red Sea, including the Bab-el-Mandeb Strait, could severely impact global shipping, causing longer routes and higher costs.
• 😀 A blockade of the Red Sea would add 8,900 km and two weeks to shipping routes, increasing fuel costs and time delays for ships.
• 😀 30% of global containers and 7-10% of the world’s oil pass through the Red Sea, making it vital to global trade stability.
• 😀 Insurance costs for ships using the Red Sea have surged due to the heightened risk of attacks, raising shipping costs by up to 2.5 times.
• 😀 India is heavily impacted by disruptions in the Red Sea as 20% of its exports pass through this route, including vital oil and trade to Europe.
• 😀 The Houthi rebel attacks on ships are creating a ripple effect on Indian businesses, increasing costs for exports like basmati rice, textiles, and spices.
• 😀 If the conflict escalates further, global oil prices and inflation could rise, affecting economies worldwide and leading to potential trade blockages.
• 😀 The geopolitical implications of the Red Sea conflict involve major global players like the US, Israel, Iran, and Russia, with the potential for further escalation.

Q & A

What is the current situation in the Red Sea, and why is it significant?

The Red Sea has been experiencing rising tensions due to multiple attacks by Yemen-based Houthi rebels on commercial ships. These attacks have escalated to the point where global trade, particularly involving critical shipping routes through the Red Sea, is under threat. The situation is becoming more significant as it could lead to global economic disruptions, especially in trade between Europe, Asia, and the Middle East.

Who are the Houthi rebels, and what are their motivations?

The Houthi rebels, a group originating from Yemen, initially formed in the 1990s to fight against corruption and to represent the Zaydi Shia minority. Over time, they have become a proxy force backed by Iran, fighting against the Yemeni government, which is supported by Saudi Arabia and the United States. Their recent attacks on ships are linked to exerting pressure on countries to stop supporting Israel in its conflict with Palestine.

How are the Houthi rebels targeting commercial ships in the Red Sea?

Initially, the Houthi rebels targeted ships headed to or owned by Israel. However, they have expanded their attacks to include vessels from other countries as well, in an attempt to pressure international trade and influence political stances regarding Israel’s actions in Gaza.

Why is the Red Sea such an important region for global trade?

The Red Sea is a critical trade corridor connecting Europe and Asia. It links the Mediterranean Sea to the Indian Ocean and contains the Suez Canal, a shortcut for ships traveling between Asia and Europe. Disruptions in this region could significantly increase shipping time and costs by forcing ships to reroute around Africa, thus impacting global supply chains.

What are the key choke points in the Red Sea that make it vulnerable to disruption?

The two main choke points in the Red Sea are the Suez Canal and the Bab el-Mandeb Strait. The Bab el-Mandeb is particularly narrow, at its tightest point just 26 km wide, making it a vulnerable area for blockages or attacks that could disrupt international shipping traffic.

How much trade passes through the Red Sea, and what would be the impact of a blockage?

Around $1 trillion worth of goods pass through the Red Sea annually, with 30% of the world’s containers and a significant portion of global oil and liquefied natural gas transiting the region. A disruption in this area could lead to massive delays and increased costs, as ships would be forced to take longer routes, like going around the Cape of Good Hope, adding significant time and fuel expenses to global shipping.

What is the direct impact of the Red Sea conflict on India’s trade and economy?

For India, the Red Sea is a vital lifeline for trade with Europe and the US. The conflict has led to increased shipping costs, with insurance rates rising and shipping times lengthening. As a result, India’s exports, such as rice and textiles, are facing higher transportation costs, and supply chains are being disrupted. The overall shipping costs for Indian goods to these markets have increased by 20-40%, affecting labor-intensive sectors.

What specific products from India are being affected by the conflict in the Red Sea?

Indian exports like basmati rice, leather, spices, and textiles are seeing significant impacts. For instance, the cost of shipping basmati rice has surged, with freight costs increasing from $600 to $2,000 per 20-ton container. Additionally, exports of other goods to Europe have been delayed, with some goods worth hundreds of crores stuck due to rerouted ships and longer shipping times.

How has the conflict in the Red Sea impacted shipping insurance costs?

The insurance costs for vessels passing through the Red Sea have increased due to the heightened risk of attack. For example, a ship valued at $100 million now faces an increase in insurance costs from 0.2% per voyage to 0.5%, which means an additional $300,000 in insurance expenses per voyage.

What are the potential global economic consequences if the conflict in the Red Sea escalates further?

If the conflict escalates, the global economy could face severe disruptions. Increased oil prices, inflation, and delays in the shipping of goods would likely occur. The world could see a spike in the cost of goods, particularly in industries like energy, agriculture, and manufacturing, with countries dependent on the Red Sea shipping route for imports and exports suffering the most.