Published: 4th Mar, 2024
Context
The global supply chain turmoil, prompted by the prolonged Red Sea crisis, underscores the urgency of exploring alternative trade routes like the India-Middle East-Europe Economic Corridor (IMEC) introduced during the 2023 G-20 summit.
Dimension 1: Significance of Red Sea route
- Global trade: The Red Sea owes its strategic importance for global trade to the Bab el-Mandab Strait which lies between Yemen and Djibouti.
- Busiest route: It is one of the world’s busiest cargo and oil transit points with almost 12% of international merchandise trade passing through it.
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India’s share
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- Clear impact of re-routing: An immediate consequence of the Red Sea conflict has been that major container and oil carriers have been forced to re-route shipments via the Cape of Good Hope. The re-routing has led to
- rising ocean freight
- inflated insurance costs
- longer voyage times leading to delays and shortage of products
- increased transportation costs
- higher shipping costs leading to increased commodity prices
Dimension 2:Impact of this turmoil on India
- Drop in shipment: The rising fears among traders have already seen a drop in Indian shipments.
- Rising threats have prompted Indian exporters to hold back around 25% of their cargo ships transitioning through the Red Sea.
- Opportunity for China to promote BRI: As global supply chains are battling delayed shipments and rising costs, China is actively projecting China-Europe freight trains, which are part of the Belt and Road Initiative (BRI), as an alternate route.
Why IMEC is not receiving attention?
The India-Middle East-Europe Economic Corridor (IMEC), which was announced during the G-20 summit in 2023, is another alternative which is not receiving much attention.
- Lack of investment: Part of the problem is that apart from the MoUs, there have not been any investments or operations regarding the corridor.
- Israel-Palestine conflict: Furthermore, the Israel-Palestine conflict has put a pause on the normalisation of Arab-Israel relations which is a key element of the multi-nation initiative.
- Vulnerability: Another major challenge is the vulnerability of the Strait of Hormuz. The entire trade of the IMEC architecture flows through the Strait of Hormuz and with Iran’s proximity and control over the strait, the risk of disruptions remain very high.
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Fact Box: IMEC
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