Red Sea crisis: The Houthi assaults have increased the cost of India's imports of Russian oil

Red Sea crisis: The Houthi assaults have increased the cost of India's imports of Russian oil

In order to evade assaults on commercial ships via the Red Sea route, shipments from Moscow are now taking the lengthier journey via the Cape of Good Hope.

Twelve percent of all commerce and thirty percent of all container traffic worldwide pass via the Red Sea Strait.

According to a government official, India's imports of Russian oil are probably going to become more costly since supplies from Moscow will now take a longer route via the Cape of Good Hope in order to prevent assaults on commercial ships via the Red Sea route.

"There has been a certain impact on oil imports because Russian oil is losing that red Sea) route, consequently they are sending it through the longer route, resulting in it becoming more expensive," stated the official in question.

For cargo ships avoiding the conflict-ridden Red Sea area, the Cape of Good Hope near Africa's southern point has emerged as the next best option.

The Houthi strikes have resulted in higher shipping costs for Indian businesses, as large freight carriers choose to either wait at neighboring ports for safe transit via the Suez Canal or take the longer route across Africa to reach the West.

India boosted its oil imports from Moscow when the Russia-Ukraine conflict broke out because of the steep discounts that Moscow was providing. Moscow has overtaken Iraq and Saudi Arabia as India's top crude oil importer because to its inexpensive supply.

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Although Russian oil, which sells for more than $60 per barrel, is no longer as appealing to New Delhi as it once was due to sanctions imposed by the entire company of Seven on ships and vessel operators carrying it, the damage resulting from the Red Sea crisis may worsen as prices rise, making India more reliant on its traditional West Asian allies for its needs in crude oil.

Media sources citing data from energy cargo tracker and industry officials said that India's imports of crude oil from Russia dropped for the second consecutive month in January, reaching their lowest level in a 12-month period. According to statistics from energy cargo tracker Vortexa, Russia provided India with 1.2 million barrels of crude oil per day in January 2023, compared to 1.32 million barrels in December and 1.62 million barrels in November 2023. But Russia continues to be India's principal oil source.

The price of a barrel of crude oil is now about $80, down from a peak of $140 in 2022.

"Compared to the Red Sea route, the Cape of Good Hope is thirty percent longer. This has two effects: one, it has lengthened your trip time; and second, it has raised the daily freight charges. Because to worldwide freight movement disruptions Longening the route would have a major effect since the prices have already gone up, according to Prashant Vashishtha, vice president and co-head of Corporate Ratings at ICRA, who spoke with Moneycontrol.

Despite Houthi militants stationed in Yemen attacking commercial ships, Russian crude oil loaded at Western ports for Asian clients managed to cross the Red Sea. But last month, militants apparently erroneously attacked two tankers transporting oil for Moscow.

This seems to have led Russia, along with a lot of other shipping corporations, to choose the longer route in order to minimize security concerns.

India's alternatives

Concerns about potential disruptions to Russian oil exports had led Moneycontrol to write on January 18, citing a government official, that India could have to depend more on nations like Iraq to meet its demands for crude oil as it comes via a safer route if the Suez Canal situation escalates. There might be a delay or disruption due to the recent assaults.

"India won't have any trouble obtaining crude oil since we import quantities from Middle Eastern nations. Middle Eastern producers, including as Saudi Arabia and Iraq, utilize the Strait of Hormuz for their shipments, and there hasn't been any recorded interruption. Thus, while Russia continues to be India's primary supplier of crude oil, Hitesh Jain, chief analyst at Yes Securities, anticipates that shipments from Iraq would rise.

Shipments are taking at least 10–12 days longer to reach their destination across the Cape of Good Hope than they do through the Red Sea Strait, and traffic in the area has grown. This obviously indicates that the freight cost would have gone up, Jain said.

Because of the Houthi rebels in Yemen's repeated assaults on commercial boats since the start of the Israel-Hamas conflict in October, there have been worries about how this would affect international marine trade. Twelve percent of world commerce and thirty percent of container traffic worldwide are dependent on the strait. Approximately 80% of India's commerce with Europe travels via this route.

India imports more than 80 percent of its oil requirements, making it the third-largest user and importer of oil in the world. Along with other major exports, the nation also leads the world in petroleum product sales to Europe, which allegedly saw a sharp drop in January as a result of escalating Red Sea tensions.