The attacks, which began about a month ago in response to the Israeli offensive in Gaza, have affected global trade as shipments have had to be diverted through longer routes, pushing up both freight and insurance costs of goods transiting through the Suez Canal.

External Affairs Minister S Jaishankar is visiting Iran for a two-day visit beginning Monday to hold talks with his counterpart Hossein Amir-Abdollahian where analysts expect him to convey global concerns over the trade and shipping disruptions which have hit India hard. Iran, which has backed the Houthi rebels, is believed to be the only regional power which has some influence on the Shia political movement in Yemen.

A meeting of top officials of various ministries – commerce, finance, external affairs, shipping and petroleum – is reportedly being held this week to consider the impact on India’s exports and imports, which accounts for nearly 10 per cent of all merchandise trade that pass through Suez Canal.

About two-thirds of India’s crude oil imports come through the same route, which also accounts for more than half of India’s merchandise trade with Europe and North Africa. The impact of the Red Sea crisis, therefore, is expected to be more pronounced in the case of India than the world’s other major economies.

The finance ministry, which is scheduled to table an interim budget, has reportedly factored in the cost of the Indian basket of crude rising to US$ 85 in FY 2024-25, up from the average of US$ 77.54 per barrel in January so far.

Other independent think tanks and foreign treasuries have modelled scenarios of crude oil prices rising by as much as US$10 a barrel and gas prices shooting up by 25 per cent.

As for Indian exports, the Research and Information Systems for Non-aligned and Developing Country, a New Delhi-based think tank, sees an year-on-year contraction of up to 6.7 per cent in 2023-24 if the conflict continues.

When ships take the longer route via Cape of Good Hope, cargo between India and Europe will take up to two weeks more to reach their destination. Commerce ministry officials agree that with exports to Europe becoming costlier with freight rates rising sharply, India’s competitive advantage will suffer, hurting demand for its exports.

The longer route and higher insurance costs have already led to global shipping giants like MSC, Maersk, CMA-CGM and Hapag-Lloyd increasing their rates, while insurance companies have also raised charges.

“We will have to push our export efforts towards East Asian, African and US west coast markets which are on our eastern seaboard and away from the conflict zone,” said a commerce ministry official who didn’t want to be named.

“Besides, we will need to target value added and niche market exports which are less price sensitive … of course settling the crisis through diplomatic efforts would be best for all concerned,” he said

India has already deployed a naval force comprising eight warships in the “war zone” through which at least 15 per cent of global sea-borne commerce passes through, in a bid to protect vital shipping lanes.

“These anti-piracy deployments are to protect international shipping in the region and take the pressure off from US and other European navies who can concentrate on Houthi bases from where missile and drone attacks have been carried out on ships,” said Pinak R Chakravarty, former Secretary (Economic Relations) in the Ministry of External Affairs and co-founder of policy think tank DeepStrat.

Added Shantanu Mukharji, former National Security Advisor to Mauritius and a security expert, “We have to also reach out to Iran which has some leverage over Houthis in Yemen and Hamas in Israel, both of whom have been involved in disrupting shipping through the Red Sea-Suez Canal zone, and see if these groups can be controlled.”

Experts also feel a dialling down of the conflict in Gaza would help calm down the region. “The Red Sea crisis has many components, none of which is amenable for quick solutions. We should step up diplomatic efforts with all stakeholders. A dialling down of conflict in Gaza would be helpful and we should continue to try for that however unlikely the prospects of an early breakthrough,” said TCA Raghavan, former Indian Ambassador to Pakistan.

The effect of the disruption and longer route taken is already having its effect on the global component chain. US-based electric automobile manufacturer Tesla has said it would suspend production at its factory in Germany after the shipping disruptions have led to a shortage on components.

These disruption costs along with increased freight rates will soon start being passed on to consumers in the form of higher prices.

“We have to remember that India imports huge amounts of electronic, electrical and machinery components besides fertiliser, a senior department of economic affairs official told The Secretariat. “The finance ministry will have to factor those in while drawing up the budget and also take steps to see how prices can be curbed by various measures.”