In a significant blow to India's export sector, the nation may face a substantial dent of around $30 billion in total exports for the current fiscal year due to escalating threats to cargo vessels in the Red Sea. The surge in container shipping rates triggered by the crisis has prompted exporters to withhold shipments. The initial assessment, conducted by the Research and Information System for Developing Countries, suggests a potential 6.7% drop in Indian exports compared to the previous fiscal year's total of $451 billion.

The Red Sea crisis, marked by Houthi militants targeting vessels passing through the Red Sea with missiles, has raised concerns about the safety of shipping routes. The Suez Canal has witnessed a 44% decline in the number of ships passing through compared to the average for the first half of December. Vessels with a combined tonnage of about 2.5 million gross tons passed through in the week to January 3, compared with approximately 4 million tons at the start of the previous month.

India heavily relies on the Red Sea route for shipping goods to Europe, the US East Coast, the Middle East, and African countries. In response to the crisis, the Indian government is engaging with export promotion councils to explore ways to protect trade routes through the Red Sea. The threats have led Indian exporters to withhold approximately 25% of outbound shipments passing through the affected route.

Ajay Sahai, the Director General of the Federation of Indian Export Organizations, noted that buyers and exporters are renegotiating contracts to accommodate surging freight charges. The disruption has led to a 173% jump in shipping rates for a 40-foot container from Asia to northern Europe, reaching over $4,000. Rates from Asia to North America's East Coast have risen by 55% to $3,900 for a 40-foot container.

The Red Sea disruption poses challenges to various sectors, including oil and auto, potentially impacting margins. Analysts also expressed concerns about inflationary pressures due to higher global freight and insurance rates, potential risks to oil prices, and the re-emergence of supply chain issues. The Indian Navy recently dispatched a warship to the Arabian Sea after a vessel reported being hijacked near Somalia's coast, further highlighting the security risks in the region.