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Houthi Attacks on Red Sea Shipping 

Context:

Ongoing Houthi Assaults on Commercial Vessels in the Red Sea underscore Global Supply Chain Vulnerabilities, prompting a reassessment of alternative routes for international trade.

Relevance:

GS II: International Relations

Dimensions of the Article:

  1. The Red Sea and its Impact on Global Trade
  2. India-Middle East Europe Economic Corridor (IMEC)
  3. Impact of Israel-Palestine Conflict on IMEC Project
  4. Making IMEC Project Viable

The Red Sea and its Impact on Global Trade

About the Red Sea:
  • Geographical Significance:
    • The Red Sea, positioned between Africa and Asia, is a crucial seawater inlet of the Indian Ocean.
  • Strategic Importance:
    • Owes its strategic relevance to the Bab el-Mandab Strait, located between Yemen and Djibouti.
  • Trade Volume:
    • One of the busiest transit points globally, facilitating almost 12% of international merchandise trade.
  • Consequences of Conflict:
    • Ongoing conflicts in the Red Sea have compelled major carriers to re-route shipments via the Cape of Good Hope.
  • Impact on Shipping:
    • Resulted in elevated ocean freight, increased insurance expenses, and extended voyage times, causing delays and product shortages.
  • Economic Ramifications:
    • The re-routing has driven up transportation costs, and these increased shipping costs are likely to translate into higher commodity prices for consumers.
Effects on India:
  • Trade Routes:
    • India heavily relies on the Red Sea route for trade with European and North African countries, constituting around 24% of exports and 14% of imports.
  • Bilateral Trade:
    • In the fiscal year 2022-23, India’s bilateral trade with Europe and North Africa amounted to $189 billion and $15 billion, respectively.
  • Impact on Indian Shipments:
    • Rising threats in the region have led Indian exporters to withhold approximately 25% of their cargo ships passing through the Red Sea, as reported by the Federation of Indian Export Organisations (FIEO).
  • Global Alternatives:
    • China is actively promoting China-Europe freight trains, part of the Belt and Road Initiative (BRI), as an alternative route amid the disruptions in the Red Sea.
  • Underutilized Corridor:
    • The India-Middle East-Europe Economic Corridor (IMEC), introduced during the G-20 summit in 2023, remains an overlooked alternative despite the challenges faced by traditional trade routes.

India-Middle East Europe Economic Corridor (IMEC):

MoU Signing and Project Components:
  • G20 Summit Initiative:
    • An MoU was endorsed during the G20 Summit in September 2023 in New Delhi, including key nations like India, the United States, Saudi Arabia, the United Arab Emirates, France, Germany, Italy, and the European Union.
  • Comprehensive Infrastructure:
    • IMEC envisions a holistic development plan involving rail connectivity, shipping lines, high-speed data cables, and energy pipelines.
  • Complementing Existing Networks:
    • These components will complement the existing maritime and road networks, aiming to enhance the smooth movement of trade and services among India, the UAE, Saudi Arabia, Jordan, Israel, and Europe.
Significance of IMEC Project:
  • Infrastructure and Connectivity Emphasis:
    • IMEC holds significance not only for its infrastructure and connectivity aspects but also from a geopolitical standpoint.
  • Dual Corridors:
    • The project introduces two distinctive corridors – the East Corridor linking India to the Arabian Gulf and the Northern Corridor connecting the Arabian Gulf to Europe.
  • Economic Stimulation:
    • The MoU asserts that IMEC is anticipated to stimulate economic development by fostering enhanced connectivity and economic integration among Asia, the Arabian Gulf, and Europe.
  • Additional Dimensions:
    • Beyond connectivity, IMEC emphasizes reliable and secure regional supply chains, improved trade accessibility, and facilitation.
  • Geopolitical Counter to BRI:
    • In geopolitical terms, IMEC is positioned as a strategic counter to China’s Belt & Road Initiative (BRI).
  • Concerns about BRI:
    • India has long voiced objections to the BRI, particularly the China-Pakistan Economic Corridor, citing territorial claims as a primary concern.

Impact of Israel-Palestine Conflict on IMEC Project:

  • Complicated Diplomacy:
    • The intensification of the Israel-Hamas conflict complicates the diplomatic cooperation required for a project of IMEC’s magnitude.
  • Potential Hindrance to Peace Deal:
    • The Saudi Arabia-Israel peace deal might face delays due to mounting anger in the Arab world over Israel’s actions in northern Gaza.
  • Geopolitical Tensions:
    • Recent events, including the cancellation of President Joe Biden’s visit to Jordan and attacks in the Middle East, contribute to heightened geopolitical tensions.
  • Regional War’s Global Repercussions:
    • While the direct impact of the conflict remains regional, its geopolitical consequences extend far beyond, potentially affecting the proposed IMEC corridor.

Making IMEC Project Viable:

  • Economic Logic Persists:
    • Despite challenges, the economic rationale of the IMEC corridor remains, encouraging stakeholders to persist in their efforts.
  • Empirical Economic Study:
    • Conducting an empirical study on the corridor’s economic benefits is crucial, with estimates suggesting a 40% reduction in journey time from India to Europe and a 30% cut in transit costs.
  • Financial Framework Establishment:
    • A robust financial framework needs to be established, attracting investments from governments, international organizations, and private sector entities.
  • Multi-Nation Operational Framework:
    • Creating a comprehensive multi-national operational framework is essential, considering the involvement of different legal systems in facilitating trade.
  • Constituting a Forum:
    • Establishing a dedicated forum for the corridor is necessary to coordinate and undertake the mentioned activities for its successful development.

-Source: The Hindu


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