People walk past a graffiti, depicting a Houthi fighter stopping an Israeli ship off the coast of Yemen.
| Photo Credit: REUTERS

The story so far: As the Red Sea crisis enters its fourth month, global supply chains are increasingly grappling with inflated freights, delayed vessel schedules, and product shortages. It has once again brought to the fore the vulnerabilities of global supply chains, highlighting the need to revisit alternate routes for global trade.

Why is the Red Sea route important?

The Red Sea owes its strategic importance for global trade to the Bab el-Mandab Strait which lies between Yemen and Djibouti. It is one of the world’s busiest cargo and oil transit points with almost 12% of international merchandise trade passing through it. An immediate consequence of the Red Sea conflict has been that major container and oil carriers have been forced to re-route shipments via the Cape of Good Hope. The re-routing has led to rising ocean freight, inflated insurance costs, and longer voyage times leading to delays and shortage of products. It has also driven up transportation costs. The higher shipping costs will be passed onto consumers in the form of increased commodity prices.

How has it affected India?

India’s trade with European and North African countries flows entirely through the Red Sea route which is almost 24% of its exports and 14% of its imports. In the year 2022-23, India’s bilateral trade with Europe and North Africa stood at $189 billion and $15 billion respectively. The rising fears among traders have already seen a drop in Indian shipments. As per the Federation of Indian Export Organisations (FIEO), rising threats have prompted Indian exporters to hold back around 25% of their cargo ships transitioning through the Red Sea.

As global supply chains are battling delayed shipments and rising costs, China is actively projecting China-Europe freight trains, which are part of the Belt and Road Initiative (BRI), as an alternate route.

What about the IMEC?

The India-Middle East-Europe Economic Corridor (IMEC), which was announced during the G-20 summit in 2023, is another alternative which is not receiving much attention. Part of the problem is that apart from the MoUs, there have not been any investments or operations regarding the corridor. Furthermore, the Israel-Palestine conflict has put a pause on the normalisation of Arab-Israel relations which is a key element of the multi-nation initiative. Another major challenge is the vulnerability of the Strait of Hormuz. The entire trade of the IMEC architecture flows through the Strait of Hormuz and with Iran’s proximity and control over the strait, the risk of disruptions remain very high. Some experts argue that the Strait of Hormuz problem can be avoided by including Oman in the IMEC architecture and keeping the supply chain away from Iran’s reach. However, that would mean further delays, as new ports and railway links will have to be developed across Oman connecting it to Saudi Arabia.

How can the IMEC be made viable?

Despite such challenges, the economic logic of the corridor holds, which should encourage stakeholders to keep working towards it. First, an empirical study on the economic benefits of the corridor needs to be conducted. The corridor is estimated to cut the journey time from India to Europe by 40% and slash transit costs by 30%. However, there are speculations that multiple handling of cargo and multi-nation transit would increase carriage and compliance costs. Therefore, it is critical to quantify the economic advantages of the corridor to attract more stakeholders. Secondly, a robust financial framework needs to be in place. Since there are no binding financial commitments on any of the signatories of the corridor, investments will have to be attracted from governments, international organisations, and private sector entities.

Lastly, a comprehensive multi-nation operational framework is needed. As the corridor involves facilitating trade across different legal systems, a multi-national framework is necessary. A forum for the corridor needs to be constituted to undertake the aforementioned activities.

Afaq Hussain is Director and Akhtar Malik is Head of Programmes at Bureau of Research on Industry and Economic Fundamentals (BRIEF), New Delhi.

President Joe Biden and Australia’s Prime Minister Anthony Albanese hold a news conference in the Rose Garden of the White House in Washington on, Oct. 25, 2023.
| Photo Credit: AP

U.S. President Joe Biden has said that he is convinced that one of the reasons why Hamas launched a terrorist attack on Israel was because of the recent announcement during the G-20 Summit in New Delhi on the ambitious India-Middle East-Europe Economic Corridor that integrates the entire region with a network of railroad.

Israel has launched a massive counter-offensive against Hamas after unprecedented attacks by the militant group on October 7 killed more than 1,400 people.

Mr. Biden told reporters at a joint news conference with the visiting Australian Prime Minister Anthony Albanese that his analysis is based on his instinct and does not have any proof for this.

“I’m convinced one of the reasons Hamas attacked when they did, and I have no proof of this, just my instinct tells me, is because of the progress we were making towards regional integration for Israel, and regional integration overall. We can’t leave that work behind,” Mr. Biden said.

This is the second time in less than a week that Mr. Biden has mentioned the India-Middle East-Europe Economic Corridor (IMEEC) as a potential reason for the terrorist attack by Hamas.

The new economic corridor, which many see as an alternative to China’s Belt and Road Initiative, was jointly announced by the leaders of the U.S., India, Saudi Arabia, the United Arab Emirates, France, Germany, Italy and the European Union on the sidelines of the G20 summit in September.

The corridor comprises an eastern corridor connecting India to the Gulf region and a northern corridor connecting the Gulf region to Europe.

Mr. Biden said in the past few weeks, he has spoken to leaders throughout the region, including King Abdullah of Jordan, President Sisi of Egypt, President Abbas of the Palestinian Authority, and Crown Prince of Saudi Arabia about making sure there’s real hope in the region for a better future about the need to work toward a greater integration for Israel while insisting that the aspirations of the Palestinian people will be part, will be part of that future as well.

Welcoming the announcement of the ambitious India-Middle East-Europe Economic Corridor (IMEC), Israeli Prime Minister Benjamin Netanyahu has described it as the “largest cooperation project in our history” that will “change the face of the Middle East, Israel, and will affect the entire world”.

The new economic corridor, which many see as an alternative to China’s Belt and Road Initiative, was jointly announced on September 9 by the leaders of the U.S., India, Saudi Arabia, the United Arab Emirates, France, Germany, Italy and the European Union on the sidelines of the G20 summit in New Delhi.

In a video message released late on Saturday evening, Mr. Netanyahu said that Israel is at the focus of an unprecedented international project that will link infrastructure from Asia to Europe.

“I welcome the statement that was released today by the United States, India, Saudi Arabia, the UAE and the European Union, as well as France, Italy and Germany,” Mr. Netanyahu said.

“A good week to you, citizens of Israel. This evening, I am pleased to inform you [of] some major news,” the Israeli Prime Minister said.

His message came as hundreds of thousands of Israelis protested on the streets against the government’s judicial overhaul plan they think will undermine the authority of the judiciary.

“Israel is at the focus of an unprecedented international project that will link infrastructure from Asia to Europe. This link will also realise a multi-year vision that will change the face of the Middle East, and Israel, and will affect the entire world,” he said.

“This vision starts in India, passes through the United Arab Emirates [UAE], Saudi Arabia, Jordan and Israel before reaching Europe,” Mr. Netanyahu said.

The announcement of the ambitious project comes amid discussions around the normalisation of ties between Israel and Saudi Arabia.

The two countries do not have diplomatic relations but the Gulf kingdom has been seen to be recently softening its position towards Israel by allowing Israeli airlines to use its air space.

It is said to have also demanded, as per media reports, several concessions from the United States for the normalisation of ties to happen with the Jewish state, some very contentious ones.

“They announced the launch of a pioneering initiative to develop an economic corridor from India, through the Middle East, to Europe. I am pleased to inform you, citizens of Israel, that our country, the State of Israel, will be a central junction in this economic corridor,” Mr. Netanyahu said.

“Our railways and ports will open a new gateway from India, through the Middle East, to Europe, and back – from Europe to India via Jordan, Saudi Arabia and the UAE,” the Israeli Prime Minister, battling a downturn in the economy in the face of his controversial Judicial overhaul plans, said.

“I would like to thank U.S. President [Joe] Biden and his administration for the major effort that has led us to today’s historic announcement. Several months ago, the U.S. contacted us regarding the realisation of this historic opportunity. Since then, it has held urgent diplomatic contacts in order to bring about today’s breakthrough,” he stressed.

The project reshapes the face of our region and allows a dream to become reality, he said.

The initiative includes the construction of railways, the laying of a hydrogen pipeline, the energy of the future, the laying of fibre optic communications cables, the laying of electricity cables and more infrastructure, the Israeli Prime Minister noted.

“The State of Israel will contribute its capabilities, all of its experience, momentum and commitment, to realise the largest cooperation project in our history. All government ministries will be instructed to join in realizing this dream,” he emphasised.

“I have directed the National Security Council, in the Prime Minister’s Office, to coordinate the staff work and also the close cooperation with the U.S. and other countries in order for this vision to become reality as soon as possible,” Mr. Netanyahu said.

The project will lead us to a new, unique and unprecedented era of global and regional cooperation and involvement.

“Together we will succeed,” Mr. Netanyahu asserted.

With protesters turning up in hundreds of thousands every weekend for the last 36 weeks, Israel faces threats of mass emigration, resignations in critical positions, army desertions, strikes and flight of capital backed by gloomy predictions from prestigious global credit rating agencies.

Mr. Netanyahu has been struggling to show that everything is under control and the economy is stable amid widespread angry protests. He also hinted at the major link project during his trip to Greece and Cyprus early this week to boost the morale of his citizens and supporters.