Escalating tensions on the Red Sea are creating risks worth billions of dollars for two of Asia’s biggest economies, threatening to affect everything from trade to investments along the key trade route.
Attacks by Iran-backed Houthis have doubled the cost of exports from India — a country that sees 80% of its goods trade with Europe, estimated at nearly $14 billion a month, pass through the Red Sea.
On the other hand, while China is largely seen as immune to Houthi attacks — owing to Beijing’s influence over Tehran — its commercial interests along the Suez Canal have been put at risk.
Both the Asian trade giants have expressed concerns on the Red Sea attacks, which despite efforts by a US-led coalition are continuing to escalate.
On Monday, the Houthis vowed to expand its targets to include US ships, adding that “the ship doesn’t necessarily have to be heading to Israel for us to target it.”
“It is enough for it to be American.”
Their pledge came shortly after the Yemeni forces struck the US-owned and operated dry bulk ship Gibraltar Eagle with an anti-ship ballistic missile.
$10 billion hit to India
Indian exporters say 95% of vessels from the country have now rerouted around the Cape of Good Hope on the southern tip of Africa, to avoid the Red Sea.
The diversion has added 4,000 to 6,000 nautical miles and 14-20 days to journeys from India since the Red Sea attacks began in November.
The cost of a 24-foot shipping container from India to Europe, the east coast of America and the UK had risen to $1,500 from $600 before the Red Sea attacks, according to four exporters including the head of an export association.
The shipping cost surge coupled with delay in delivery of orders is set to hit Indian exports worth at least $10 billion in the fiscal year to March 2024, industry experts say.
“Our profit margins have been wiped out as the shipping costs have gone up,” Arun Kumar Garodia, chairman of the Engineering Export Promotion Council of India (EEPC), said.
Garodia pointed out that while shipping companies have threatened to raise freight costs further later this week, most buyers were not ready to revise prices.
Exporters also said about a quarter of this month’s exports are held up due to delays in shipping schedules.
“The sailing of most of the ships has been impacted and generally postponed by 2-3 weeks as the incoming ships, with longer routes, are delayed,” Satya Srinivas, a senior Indian trade ministry official, said on Monday.
Some recent consignments had been put on hold, although December exports, estimated at $38.45 billion, were not impacted by the Red Sea crisis, he said.
China’s Egypt investments in jeopardy
Meanwhile, Houthi attacks — aimed at asserting solidarity for Palestinians in the Gaza War — are also challenging the ability of the world’s biggest trading nation to defend billions in strategic investments in Egypt.
Since President Abdel-Fattah el-Sisi came to power in 2014, China has stepped up its investment and commercial activities along Egypt’s Suez Canal, through which a significant amount of the Asian giant’s West-bound goods flow.
Beijing has encouraged state-owned companies to invest tens of billions in Egypt’s logistics, transport and energy sectors, data from the American Enterprise Institute (AEI) think tank shows. It has also extended $3.1 billion in loans, according to the World Bank.
In the months leading up to Hamas’ October 7 attack on Israel alone, firms from China and Hong Kong pledged at least $20 billion in various projects along Egypt’s arterial waterway.
Last March, for instance, China’s COSCO invested $1 billion in Egypt’s port infrastructure, according to the AEI. Earlier this month, the state-owned shipping giant joined Maersk, Hapag-Lloyd, Evergreen, and other major shipping lines in suspending services to Israel.
Developments such as these could frustrate Chinese investors who have committed huge sums to the development of the Suez Canal to profit from the safe passage of commercial ships through the waterway.
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BRI at stake too
Like COSCO, prominent Hong Kong-based congolomerate CK Hutchison Holdings announced plans in March to put up a further $700 million to develop a new container terminal in the Red Sea port of Ain Sokhna and in B100, a new container terminal in the Mediterranean port of Alexandria.
That same month, demonstrating China’s broader commercial interests in Egypt as a link between Asia and Mediterranean and European markets, Xinxing Ductile Iron Pipes made known plans to invest $2 billion in iron and steel plants, also in Ain Sokhna.
And in October, Egypt’s Suez Canal Economic Zone struck a $6.75 billion deal with state-owned China Energy to develop green ammonia and green hydrogen projects in the Sokhna Industrial Zone, as well as a $8 billion agreement with Hong Kong-listed United Energy Group to establish a potassium chloride production site.
Equally at stake is President Xi Jinping’s flagship Belt and Road Initiative, which Egypt, Yemen and Iran are all members of.
China consistently maintains it will not interfere in the domestic affairs of other sovereign states, leading analysts to question how it should respond when problems emerge among BRI members.
The dilemma arises in particular when the issue fundamentally undermines the BRI’s stated purpose, which is to connect Asia with Europe through the creation of a series of continent-spanning investment and trade corridors.
- Reuters, with additional editing by Vishakha Saxena