Middle East Conflict: Exporters Fear Rise in Logistics, Insurance Costs, Impact on Shipments

With a joint attack by the US and Israel on Iran triggering a massive military confrontation in the Middle East, Indian exporters on Saturday said the development is expected to push up transportation and insurance costs, potentially disrupting outbound shipments to the US and Europe.

They said that any prolonged tensions in the region could impact oil prices, which will have implications for input costs and current stability.

Following the attack by the United States and Israel, Iran launched retaliatory military strikes targeting several American military bases in the Middle East, including in Qatar, Kuwait and the United Arab Emirates (UAE).

Federation of Indian Export Organisations (FIEO) President SC Ralhan said the ongoing conflict has already begun to disrupt established global logistics channels.

“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,” Ralhan said.

In addition, he said, 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,” Ralhan 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, he said.

Sharing similar views, Apparel Export Promotion Council Chairman A Sakthivel said: “We are worried that our shipment may get delayed due to this tension. We may have to take long routes to send our goods to Europe, USA and other western countries”.

As a joint attack by the US and Israel on Iran triggered a massive military confrontation in the Middle East, India on Saturday urged all sides to exercise restraint and avoid escalation, asserting that the sovereignty and territorial integrity of all countries must be respected.

In 2024, the tensions in the Middle East region following the Israel-Hamas war had impacted the transportation of India through the Red Sea route, as shippers had to take longer routes to reach destinations in the US and Europe.

An exporter from the leather sector said, “We may face similar problems now if the war continues for long”.

The Red Sea crisis last time began in a major way on October 19, 2023, when the Iran-backed Houthis in Yemen launched attacks on civilian-operated cargo ships near the Yemeni coast.

RED SEA: KEY SHIPPING ROUTE FOR INDIAN EXPORTERS --------------------------------------------------------------------------------- India is heavily reliant on the Bab-el-Mandeb Strait for crude oil and LNG imports and trade with key regions. The trade route of Bab-el-Mandeb Strait, the Suez Canal, and the Red Sea is shorter and faster than the Cape of Good Hope route, making it the preferred option for most shipping companies.

Approximately 65 per cent of India's crude oil from countries like Iraq, Saudi Arabia, and others pass through the Suez Canal. It is a key route for exports and imports from Europe and North Africa.

The Bab-el-Mandeb Strait is a crucial shipping route for traders connecting the Red Sea and the Mediterranean Sea to the Indian Ocean. The route may get impacted due to the conflict.

Longer routes may result in delays of about 14-20 days and also higher freight and insurance costs.

The route starts from major Indian ports like Mumbai, JNPT, or Chennai, heads westward through the Arabian Sea, enters the Red Sea, and navigates through the Suez Canal into the Mediterranean Sea. From there, ships can reach various European ports, depending on their destinations.

The Cape of Good Hope route is longer and slower, but it avoids the potential for delays or disruptions in the Suez Canal. It is typically used for bulk cargo shipments where time is less critical or when political instability in the Middle East raises concerns about using the Suez Canal.

EXPORTERS FEAR RED SEA CRISIS TO DISRUPT GLOBAL TRADE ------------------------------------------------------------------------------------------- The Red Sea crisis is likely to disrupt global trade and supply chains, particularly affecting routes through the Suez Canal, which handles about 30 per cent of global container trade.

Additionally, container freight rates are expected to go up as shipping firms would raise their rates for shipments from the Indian Subcontinent to North Europe in response to the increased risks and costs.

“Geopolitical situation is very fluid at present. It is keeping us on our toes and exporters are completely shattered, they do not know what is going to happen next. We need immediate government support,” Sharad Kumar Saraf, Mumbai-based exporter and founder chairman of Technocraft Industries India, said.

Because of this, the shipping costs may jump and the consignments may take more time to reach Europe and the US as the ships have to take the Cape of Good Hope route, encircling Africa, he said.