West Asia conflict may drive up logistics costs

The growing intensity of the West Asia conflict is likely to escalate logistics costs and disrupt the trading of essentials like oil, electronics, and agriculture, say exporters in the industry. Rising insurance costs for exports could stress working capital for Indian exporters as a result of the intensification of conflict in war-torn nations.

As per the Global Trade Research Initiative, the India–Israel, India–Jordan, and India–Lebanon trade relations are already feeling the heat of this very conflict. The Federation of Indian Export Organisations has expressed serious concerns, apprehending the impact the Iran–Israel tensions may have on the worldwide pattern of trade and global economies.

Any conflict escalations could disrupt oil supplies, which will naturally push up prices. Oil prices have already gone up by $4 a barrel, said FIEO Director General Ajay Sahai. He pointed out that the strained relations might usher in an unstable Middle East that threatens to disrupt the very strategic trade routes, such as the Strait of Hormuz, around which oil transportation rides often.

Sahai pointed out that such interruptions would most probably increase shipping costs and delays in arrival, affecting nearly all industries dependent on logistics stability, ranging from electronics to agriculture. He further added that the chances of Western sanctions could add to the complexities in the dynamics of global trade and, therefore, market volatility would increase further.

S.C. Ralhan, chairman of Hand Tool Association, said that the order bookings to the conflict-torn areas would be suspended, which would make transactions highly risky. He added that in the conflict-affected areas, insurance costs could go up or even be unavailable.

India's trade data through July 2024 witnessed significant adversities on account of the war. Trade with Israel plummeted by 63.5 per cent, with Jordan plunging 38.5 per cent, and with Lebanon saw a fall of 6.8 per cent. This is consistent with the Israel-Hamas war that began in October 2023 and has since then spreading across Lebanon and Syria and, by consequence, ringing knock effects in Jordan and Iran.

As of now, so far, key regional players like Saudi Arabia, the UAE, Kuwait, and Qatar remained out of it. In other words, the situation keeps changing fast. So, exports from India to Israel reduced to $639 million for April-July this fiscal year as compared to $4.52 billion during 2023-24. Imports from Israel in that period came to $469.44 million, whereas it used to be $2 billion last fiscal year.

The exports to Iran, Jordan, and Lebanon too have passed through a pretty large decline, thereby reflecting an all-round effect on India's trade with West Asia. The major export items for these countries are basmati rice, man-made yarn, gems and jewelry, and cotton fabrics.
India has to push through this challenging situation, and exporters must, therefore, be more cautious in their movements and operations so that they are not significantly disrupted.