22th January 2024 (9 Topics)

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Viability and Concerns of the India-Middle East-Europe Economic Corridor (IMEC)

Context:

The Yemen conflict prompts reevaluation of the Suez Canal's role in global trade, strengthening the case for the India-Middle East-Europe Economic Corridor (IMEC) amid geopolitical uncertainties.

Industry's view:

- Suez Canal Concerns: The Yemen conflict has eroded confidence in the Suez Canal as the primary route for east-west trade.

- Long routes: Shippers are increasingly considering longer routes around Africa, emphasizing the need for alternative trade corridors.

- Multinational Support: IMEC is expected to attract financing from the U.S., Europe, Saudi Arabia, and India, with potential templates from projects like the Colombo deepwater container terminal.

IMEC's Potential and Challenges:

- Strengthened Case: The Yemen conflict boosts IMEC's viability as a Suez Canal alternative, even though challenges persist. Critics highlight concerns about major trade links between Saudi Arabia and Israel, particularly post the Gaza war. The IMEC memorandum of understanding faces delays due to geopolitical tensions.

- Changing West Asia: Post-Gaza war, West Asia's geopolitical landscape is expected to shift significantly. Turkey expresses irritation at being excluded from IMEC, proposing an alternative route through Iraq. Optimism remains for Turkey's eventual inclusion in the project.

- Beyond Trade: IMEC encompasses trade, electricity, digital cables, and hydrogen pipelines, aligning with global decarbonization trends.

India’s Stakes:

- India's Containerization Appeal: Containerization through rail and road in IMEC appeals to India, aligning with the National Logistics Policy's goal to lower logistics costs, accelerates trade and reduces port costs, aligning with India's logistics goals.

- Rail Freight Corridors: Dedicated rail freight corridors linked to IMEC ports, such as Mundra and Jawaharlal Nehru Port Trust (JNPT), contribute to IMEC's strategic logic. Southern India, often relying on road and transshipment via Colombo, can leverage IMEC's potential with dedicated freight corridors, potentially cutting delivery schedules.

- Port Development: Adani's stake in Haifa port could offer insights into capacity expansion planning, drawing parallels with the Colombo deepwater container terminal.

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