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With no signs of a let up in threat to ships transiting the Red Sea, India’s petroleum product exports to Europe have shifted entirely to the significantly longer and costlier, albeit safer, route around Africa via the Cape of Good Hope.
As per ship tracking data, not even one Europe-bound fuel taker that set sail from India in June and July took the Red Sea route, which used to be the mainstay of India’s exports to Europe and other Western markets. In fact, this has been the story largely over the past five months, with the exception of a few isolated cargoes that took the seemingly perilous route in March and May.
Since late last year, numerous cargo ships have come under attack from the Iran-backed Houthi rebels of Yemen around the Bab el-Mandeb strait, which leads to the Red Sea and Suez Canal, forming the shortest, although narrow, route to the Mediterranean Sea and beyond from the Arab Peninsula, North-East Africa, and the Arabian Sea. The route is seen as an important artery of global goods and energy supplies. The Houthis have been claiming that they are targeting vessels with links to Israel and its allies in response to its military offensive in Gaza.
As per trade sources, taking the Cape of Good Hope route instead of the Suez Canal adds 15-20 days to the voyage to Europe from India, apart from significantly inflating the freight costs. Higher risk premiums and longer voyages have hit movement of goods between Asia and Europe, and Asia and North America in terms of significantly higher freight rates.
Prior to the Red Sea security crisis, tankers hauling fuels from India to Europe rarely opted for the longer route around the African continent and depended almost entirely on the Red Sea-Suez Canal route.
“Stemming from shippers’ preference for safe voyages, even if it comes at the expense of cost and time, the Suez Canal has effectively stopped being a regular waterway for India’s exporters. As a consequence, India’s (petroleum) product exports to Europe dropped by 25 per cent between H2 (July-December) 2023 and H1 (January-June) 2024,” said Viktor Katona, head of crude analysis at commodity market analytics firm Kpler.
India’s fuel exports to Europe in July were nearly flat sequentially at a little over 276,000 barrels per day (bpd), with all shipments choosing to take the longer route around Africa, just like in June, per Kpler’s vessel tracking data.
The data shows that India’s petroleum fuel exports to Europe in recent months have edged lower—at around 250,000-300,000 bpd—from the all-time high of around 425,000 bpd in December 2023. India’s overall fuel exports, however, are stable at around 1.2 million bpd with increased dispatches to Asian markets and Australia offsetting the decline in supplies to Europe.
“Asia is the market India is focusing on right now, and the Middle East has stepped in for Europe’s petroleum product needs, mostly on the diesel and jet fuel side,” Katona said.
With attacks on merchant vessels in and around the Red Sea intensifying in recent weeks amid growing concerns over the possibility of the Israel-Hamas conflict developing into a wider Middle Eastern crisis with increasing involvement of Iran, other regional players, and even Western powers, it is highly unlikely that the Red Sea-Suez Canal route would find favour with shippers anytime soon.
India was traditionally not the biggest of fuel sources for Europe, with the continent depending heavily on Russia for energy imports. However, in the aftermath of Moscow’s February 2022 invasion of Ukraine, as Europe started shunning Russian crude oil and fuels, India emerged as the largest buyer of Russian seaborne crude and also a major fuel supplier to Europe with all such shipments passing through the Red Sea.
Notably, the movement of Russian oil through the Suez Canal-Red Sea route has largely been immune to the prevailing crisis as Russia is perceived as Iran’s ally and Yemen’s Houthi rebels are evidently backed by Tehran.
“Indian refiners import their Russian barrels on a delivered basis, which means they don’t really have a say in what routes would be taken for those cargoes…Generally speaking, most of Russian (crude oil) exports to India still go through the Suez Canal, so in terms of exposure still some 40 per cent of Indian (oil) imports rely on the Egyptian waterway,” Katona said.
Prior to December 2023, the Suez Canal and the Red Sea accounted for around 10 per cent of global crude oil flows and 14 per cent of petroleum product flows. But as a number of major shipping companies are now avoiding the route, choosing instead to go around Africa, the share of global oil and petroleum product flows passing through the Suez Canal has dropped significantly. Russian crude, however, stands out as an exception.
