Red Sea Crisis: Is India paying for the prime minister's choices?

Amidst reports that the cost of Indian exports to Europe has doubled, Indian external affairs minister S. Jaishankar rushed to Tehran on 14 January to confer with his counterpart Hossein Amir-Abdollahian. Almost simultaneously, Prime Minister Narendra Modi held a phone conversation with President Vladimir Putin of Russia.

The ministry of external affairs (MEA) readout of the Modi–Putin call said they ‘exchanged views on regional and global issues of mutual interest’. As for Jaishankar’s visit, the MEA vaguely offered that he would ‘hold discussions on bilateral, regional and global issues’.

Attacks on merchant ships with Israeli links in the Red Sea by Yemen’s Shia rebels, known as Houthis, appear to have been on the top of the agenda though. Jaishankar would have urged Iran to persuade the Houthis, who are backed by Tehran, to stop their offensive, as 80 per cent of India’s goods trade with Europe passes through the Red Sea and is estimated to be worth $14 billion every month.

Modi concurrently appealed to Putin to exert influence on Iran to rein in the Houthis. Coincidentally, the Russian foreign and defence ministers were holding a scheduled 2+2 meeting with their Iranian counterparts—the week before, a Russian oil tanker had been mistakenly hit by Houthi missiles.

With the Red Sea turning unsafe, Qatar last week pulled out its tankers that were supplying gas to Europe, raising concern across the European Union. The chairman of India’s Engineering Export Promotion Council said that the exporters’ profit mar- gins were being wiped out as container costs to Europe had risen from $600 (before 7 October 2023) to $1,500 in January 2024.

Almost all the vessels on the Red Sea route are now using the longer maritime route that goes round the Cape of Good Hope, on the southern tip of Africa. With a number of carriers having diverted their vessels, it now costs shippers millions of dollars more to deliver their exports—a burden which the importer will invariably pass on to the consumer.

Houthi attacks on commercial vessels passing through the Red Sea began in mid-November in protest against Israel’s war on Gaza. They have disrupted global trade, as most shipping giants have now stopped taking their vessels through the Suez Canal and the Red Sea. Sailing dates have been postponed by two to three weeks as incoming ships are taking longer to arrive. While initially the Houthis had targeted only Israeli- owned vessels or vessels going to Israel, following the air and sea strikes on their bases in Yemen by the US and UK armed forces last week, the group has now warned that it will target both US and British commercial and passenger ships.

Crude oil prices have, of late, exceeded $85 a barrel, and experts forecast this may touch $100 soon. Through most of 2023, India enjoyed a bonanza of Russian crude at sig- nificantly lower rates, before these, too, rose. Russian and Gulf oil supplies to India should not be affected by the Houthi militancy; but Qatar Energy also paused LNG shipments through the Red Sea last week. Avoidance of the Red Sea by ocean liners in the foreseeable future will mean a delay in India’s exports and imports in general, and render incoming as well as outgoing items even more expensive. Consequently, they will become both less affordable for Indians and less competitive for European, American and North African buyers. Higher crude oil prices coupled with greater shipment charges will translate to an inflationary impact across the board. For example, trans- portation by road and by diesel-run trains will become dearer, thereby raising costs. John Llewellyn, a former chief economist at the Paris-based Organisation for Economic Cooperation and Development (OECD), was quoted by media as putting the probability of serious disruptions to world trade at 30 per cent now, up from 10 per cent the week before. “There is a horrible and inevitable progression that could see the situation in the Red Sea spread to the Strait of Hormuz and the wider Middle East,” he assessed.

Once a strategic asset, closeness to Israel is now becoming a liability for India. Prime Minister Modi's reaction to the 7 October Hamas attack on Israeli civilians, military and intelligence-gathering installations was a rather impassioned ‘we stand in solidarity with Israel at this difficult hour’.

A few days later, after a phone call with Netanyahu, he declared, ‘People of India stand firmly with Israel in this difficult hour.’

Since then, however, New Delhi has spurned Netanyahu’s repeated entreaties to brand Hamas as a terrorist organisation. India has never officially pointed the finger at Hamas for the 7 October attack. It has resumed the traditional stance of voting against Israel in the UN General Assembly resolutions on the Palestine problem and the Netanyahu–Modi pow-wows have become less frequent.

‘This is a far cry from the controversial gesture by Prime Minister Modi during his “historic” five-day visit to Israel in 2017 to pay homage at the tomb of the founding father of Zionism, Theodor Herzl, in Haifa,’ writes former diplomat M.K. Bhadrakumar.

The world, however, now identifies India as being in the Anglo-American camp on the issue, unsympathetic to the predominantly Muslim Palestinian people. Moreover, the Indian government and several BJP-ruled states are reportedly active in supplying Indian labourers to Israel, which is short of human resources because of the war. Worse, the Indian labourers will apparently not have any protection or social security, traditionally offered to workers in conflict zones, according to Indian trade unions. Can India then convince Iran and the Houthis that it is not aligned with Israel and the US?

The Houthis, who control a part of Yemen, are actually emerging stronger and have garnered the sympathy of the Arab world by taking a stand against Israel— which increasingly has not only given short shrift to international law and the two-State formula mandated by the UN, but also incre- mentally encroached and built settlements on land allocated to Palestinians in Gaza and the West Bank.

The Houthis have proclaimed that all ships headed for an Israeli port or coming from one are their targets. (The Israeli port of Haifa, thanks to lobbying by Modi, is 70 per cent owned by the Adani Group.) In reality, cargo liners flaunting the US and UK flags have become fair game as well. A British Royal Navy warship and a US-owned merchant ship were recently hit by Houthi missiles.

Apart from the human and hardware aspects, then, all this has caused serious disruption to international shipping and transnational commerce, because around 12 per cent of all goods traded in the world pass through the Suez Canal and thereby along the Red Sea—not to mention the downstream impact on the global economy.

The US and the UK have general elections coming up in autumn. The economy often plays a central part in deciding votes in the two countries. A British Observer newspaper headline read, ‘Red Sea crisis could shatter hopes of global economic recovery’. If that happens, it will be bad news for both President Biden and Prime Minister Sunak.

If India had acted neutrally in the latest Israel–Palestine confrontation, our ships at least would not have been so vulnerable. The economic headwinds India is about to encounter would have, as a result, been reduced to a certain extent. The Houthis now view Modi as intimate with Netanyahu, who intrinsically prefers the policy of Israel’s staunchest and unapologetic backers—the US and the UK.

By entering the fray, the Houthis—typically seen as a proxy for Iran—have expanded the hostilities beyond the ‘Israel vs Hamas’ conceit. This tempts others—like the Lebanon-based Hezbollah (deemed to be far more powerful than Hamas)—to escalate their offensive.

The simmering public anger in Arab countries has so far been kept under a lid by dictatorial dispensations. But unless the Israeli Defense Forces (IDF) restrain themselves, that resentment could boil over into a demand for an intervention in the Palestinians’ favour.

Tragically, Modi has denuded India of the moral authority to be among the voices of reason in the Israel–Palestine face-off. Instead, he has enhanced our exposure to an economic downturn and, more worryingly, to a cost-of-living challenge, adding to India’s vulnerability.