Red Sea Crisis: India’s petroleum exports to Europe nosedive to 18-month low in January

Countries that saw a spurt in petroleum product dispatches from India in January vis-à-vis December include Saudi Arabia, Australia, Indonesia, Japan, Oman, Sri Lanka, and Bangladesh, among others.

 Over the past couple of months, a number of cargo ships have come under attack from the Yemen based Houthi rebels, around the Bab el-Mandeb strait, which leads to the Red Sea and Suez Canal, forming the shortest, 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 so far claimed that they are targeting vessels with links to Israel and its allies in view of its military offensive in Gaza.

The security situation in the Red Sea region has forced a number of major shipping companies to shun the route and instead take the much longer route around Africa via the Cape of Good Hope. Higher risk premiums and longer voyages have hit movement of goods between Asia & Europe, and Asia & North America in terms of significantly higher freight rates. The majority of Indian fuel exports to Europe are now going around Africa, adding 15-20 days to the voyage.

India was traditionally not one of the major 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. Interestingly, 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 the Houthi rebels appear to be backed by Tehran.

“Last year, 3.5 Mbd (3.5 million bpd) of refined product flows was shipped via the Suez, a record annual high, making up 14% of total refined product flows. Jet fuel is the most exposed, with 33% of exports utilizing the canal. Flows of these products are already disrupted with some cargoes travelling via the Cape (of Good Hope), while others are waiting in the Arabian Sea. The surge in freight rates has also closed arbitrages which will restrict long haul flows to Europe,” Kpler had said last month in a detailed report on trade disruptions caused by the Red Sea crisis.

India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its domestic requirement. The country, however, is a net exporter of petroleum products as its refining capacity of around 5 million bpd is higher than the demand in the domestic market.