West Asian Conflict Disrupts India's Trade, Raising Freight Costs and Supply Chain Concerns

The onset of conflict in West Asia has given rise to another set of challenges for India’s trade as it has already begun to disrupt established global logistics channels. As Israel and US conducted strikes on Iran, Iran-backed Houthi rebels have said that they will be relaunching attacks on shipping routed through the Red Sea. Shipping giant Maersk, which had resumed limited Red Sea transits last month, has again gone back to using transit routes around Cape of Good Hope for moving goods between East and the West. “Air routes are being altered, and maritime trade through the Red Sea and key Gulf straits faces heightened uncertainty. If diversions become prolonged, shipments may increasingly have to reroute via the Cape of Good Hope, adding an estimated 15–20 days to transit time for Europe and the United States,” said President of Federation of Indian Export Organisations S C Ralhan said. This will inevitably raise freight costs and stretch supply chains. In addition, heightened geopolitical risk typically results in higher marine insurance premiums, further adding to transaction costs for exporters. “A prolonged disruption could also exert upward pressure on global energy prices, with consequential implications for input costs and currency stability, including pressure on the Rupee,” he said. While Indian exporters have demonstrated resilience in navigating past disruptions, sustained instability in these critical trade corridors would warrant close monitoring and calibrated policy support to maintain competitiveness, the FIEO Chief said. The Red Sea corridor remains the primary artery for India’s trade with Europe, the US East Coast, and North Africa. Roughly 50% of India’s total exports flow through this route. This includes high-value sectors like textiles, chemicals, and capital goods. Approximately 30% of India’s imports – including key fossil fuel imports – also transit via the Red Sea.