Chennai: The Iran-Israel conflict has increased the freight cost of Indian shipments sent through both air and sea. Meanwhile, India’s trade with Israel has dropped by 50 per cent as the country has been involved in conflicts for over a year.
The Suez Canal route is important for India’s trade with European countries, North Africa and North and South America. India’s merchandise trade with these regions accounts for 35-40 per cent of the total foreign trade for India.
Both air and ship freight costs have been impacted by the tensions. “Almost 80 per cent of ships have been taking a longer route, avoiding the Red Sea and this has escalated the freight costs. Apart from the increased fuel cost, shipping companies are passing on higher insurance premiums and other costs,” said Ajay Sahai, secretary general, Federation of Indian Export Organisations.
The shipping rate had been coming down in the past few months due to slowing global demand. However, with the conflict, the decline has been arrested in some routes and rates have gone up in a few other routes.
Further, some product segments are increasingly taking the air route. As flights take a longer route to avoid flying over Iran, higher cost on ATF has increased air freights as well, he added.
Meanwhile, the trade with Israel is down by around 50 per cent. Exports to Israel between April and July dipped 54 per cent from $1.4 billion last year to $640 million this year. Imports from Israel came down 43 per cent from $875 million to $495 million during the period.
In the import basket, products like fertilizers, chemicals and diamonds have been impacted. Exports of petroleum products to Israel dropped from $5.10 million to $2 million during the period. In the export basket, organic chemicals, gems and jewellery, machinery and arms and ammunition have seen decline.
According to ICRA, Iran was a large buyer of basmati rice and tea from India in FY2023. However, its share went down significantly in FY2024. The ongoing geopolitical tensions may further constrain such exports to Iran in FY2025. Some of the products imported from Iran like dye intermediates and asbestos can be substituted by other countries.
Following western sanctions on crude oil, Iran’s share in the total Indian merchandise imports declined to below 1 per cent in FY2024 from the average of 2-3 per cent seen in the decade before FY2019.
