Date : 30/12/2023

Relevance: GS Paper 2 – International Relations

Keywords: OPS, IFC-IOR, Foreign Exchange, Global Supply Chains.

Context-

The Red Sea has become a focal point of international concern as Houthi rebels in Yemen intensify their missile and drone attacks on commercial shipping. Recent incidents, including the projectile strike on the Liberian-flagged merchant vessel Chem Pluto, raise questions about the broader implications for global shipping, supply chains, and economic stability.

Houthi Drone Attacks in the Red Sea

The recent surge in missile and drone attacks by Houthi rebels follows Israel's offensive against Hamas in Gaza, with the Red Sea becoming a hotspot for maritime tensions. The Chem Pluto incident, along with attacks on vessels like m.v. Sai Baba and m.v. BLAAMANEN, underscores a dangerous escalation that poses a threat to the critical shipping artery of the Red Sea. The Houthi rebels have declared their intent to target maritime commerce linked to Israel, leveraging a sophisticated arsenal of ballistic missiles and long-range drones. The attacks extend far from the shores, prompting daily interventions by the U.S. Navy to intercept missiles and drones in the region. Understanding the nature of these attacks is crucial for assessing the risks and formulating effective countermeasures.

Implications for the World

The Houthi attack on maritime commerce in the Red Sea and the Bab el-Mandeb region has significant implications for the world. Here are some key consequences:

• Disruption of Global Supply Chains: The Red Sea is a crucial shipping artery for global commerce, with about 12% of global trade passing through it. The threat posed by Houthi rebels targeting maritime commerce, coupled with the avoidance of the Red Sea route by shipping companies, can disrupt supply chains worldwide. This may lead to delays in the transportation of goods and increased costs for shipping companies.
• Economic Impact: The Red Sea and the Bab el-Mandeb strait play a vital role in international trade, accounting for billions of dollars of goods. The attacks and the subsequent avoidance of the area by shipping companies can have economic repercussions globally. Increased fuel and operating costs, as well as extended voyage times, can impact the profitability of businesses relying on timely and cost-effective shipping.
• Shift in Shipping Routes: Major shipping companies, including industry giant Maersk, have opted to reroute vessels around Africa via the Cape of Good Hope to avoid the Red Sea. This strategic shift in shipping routes can lead to longer voyages, disrupting shipping schedules and increasing operational costs. It also affects the revenue generated by the Suez Canal, which is a critical waterway for global maritime trade.
• Security Concerns: The Houthi rebels' possession of sophisticated ballistic missiles and long-range drones poses a security threat to maritime traffic in the region. The daily intervention by the U.S. Navy to shoot down missiles and drones indicates the severity of the security situation, requiring ongoing military efforts to protect shipping lanes.
• Impact on Regional Ports: The avoidance of the Red Sea route affects the operational dynamics of ports in Djibouti and the Gulf of Aden. Ports in these regions may experience decreased traffic, impacting their revenue and overall economic contributions.
• Geopolitical Tensions: The Houthi attacks and the subsequent responses by the U.S. Navy contribute to heightened geopolitical tensions in the region. The situation adds complexity to existing conflicts, such as the Israeli-Hamas conflict, and may prompt further international involvement to address the security threats in the Red Sea and surrounding areas.

Implications for India

The Houthi attacks may have several implications for India too, which can be seen below -

• Impact on Exports: The attacks may affect exports more than imports. Disruptions in maritime trade routes can lead to delays and increased costs for Indian exporters. This can adversely affect various industries that heavily rely on exports, such as manufacturing, textiles, and agriculture.
• Rising Costs: If shipping routes become more perilous due to the attacks, shipping companies may increase freight rates to compensate for higher risks. This, in turn, could lead to increased costs for Indian businesses involved in international trade.
• Energy Prices: The Red Sea is a crucial route for oil transportation. Any disturbance in this region can lead to uncertainties in the global oil market, potentially causing fluctuations in oil prices. India, being a major importer of oil, may face challenges in managing its energy costs.
• Supply Chain Disruptions: The attacks can disrupt the global supply chain, affecting the timely delivery of goods and raw materials to and from India. Industries that rely on just-in-time manufacturing processes may face production delays, impacting their overall efficiency.
• Foreign Exchange Impact: Trade disruptions and increased costs can impact India's balance of trade and, consequently, its foreign exchange reserves. Any negative impact on the trade balance may affect the valuation of the Indian rupee against other currencies.
• Diplomatic and Security Concerns: India may need to engage diplomatically to address the situation and ensure the security of its maritime interests. Increased geopolitical tensions and the need for diplomatic efforts can divert resources and attention from other economic priorities.

What has been done to address this issue?

Establishment of Operation Prosperity Guardian (OPS):

• The U.S. announced OPS on December 18 to counter attacks in the Red Sea, led by Task Force 153 under the Combined Maritime Forces.

Increased Indian Military Presence:

• The Indian Navy and Coast Guard have heightened their presence in the region, deploying destroyers, patrol aircraft, unmanned aerial vehicles, helicopters, and Coast Guard ships.

Continuous Deployment Since 2008:

• Indian Navy has consistently deployed ships on anti-piracy patrol in the Gulf of Aden since October 2008.
• Mission Based Deployments since 2017 involve deploying capital warships at critical maritime choke points in the Indian Ocean Region (IOR).

Information Fusion Centre for Indian Ocean Region (IFC-IOR):

• Located in Gurugram, actively monitors the region.
• Coordinates operational responses and assistance to vessels in the Indian Ocean Region, facilitating communication in the event of incidents like the recent hijacking of the m.v. Ruen.

Global Economic Concerns:

• There are concerns about the potential shock to global economies due to delays and price rises resulting from the regional crisis.

Coordination with International Organizations:

• International coordination is emphasized, especially in response to incidents like the hijacking of the m.v. Ruen.

Future Challenges

• Despite the proactive measures taken by nations and international coalitions, several questions remain unanswered.
• With Indians constituting a significant portion of commercial sailors and Indian-owned vessels being relatively few, the potential loss of life or precious cargo in a major attack raises concerns about the threshold for reaction.
• As the regional crisis unfolds, the looming shock to global economies underscores the need for coordinated and decisive responses.

Conclusion

The recent drone attacks by Houthi rebels in the Red Sea present a critical challenge to global shipping and supply chains. The geopolitical implications of these attacks go beyond regional conflicts, affecting major shipping routes, trade volumes, and economic stability. Nations, including the United States and India, are actively engaging in multinational initiatives to secure maritime routes and protect commercial interests. The coming weeks and months will likely witness heightened tensions and strategic shifts in global shipping patterns, emphasizing the need for continued vigilance and international cooperation to mitigate the impact of maritime threats on the world economy.

Source- The Hindu