News

Published: December 26, 2023
Updated: December 26, 2023

Rising Threats to India's Crude Oil Supply Chain

In recent developments, growing attacks on ships, particularly oil tankers, in and around the Red Sea pose a temporary threat to India's crude shipments from West Asia. This comes in the wake of drone attacks on two India-bound vessels, fueling concerns over maritime trade amid the Israel-Hamas conflict.

Recent Attacks Raise Concerns:

Late on Saturday, the Gabon-flagged MV Sai Baba, a commercial crude oil tanker with 25 Indian crew members, faced a one-way drone attack in the Southern Red Sea by Iran-aligned Houthi rebels. Another vessel, MV Chem Pluto, was hit by a suspected drone off the Porbandar coast in the Arabian Sea. These incidents prompt worries about the safety of shipping routes crucial for crude oil transportation.

Potential Impacts on Crude Flow:

The attacks could lead to the rerouting of vessels, impacting the flow of crude in the short term from West Asia. Given the escalation, there are concerns about rising shipping charges as consignments are opting for longer routes, bypassing the Suez Canal-Red Sea route in favor of the Cape of Good Hope.

Concerns Echoed by Industry Executives:

Shipping industry executives express specific concerns about the attacks, highlighting potential risks for ships even in the Persian Gulf. Imports from major suppliers like Saudi Arabia, the United Arab Emirates, Kuwait, and Oman could face disruptions if the situation persists.

India's Crude Oil Landscape:

India, after securing major shipments of Russian crude, has been re-establishing ties with traditional partners in West Asia. While the potential disruptions may not significantly impact overall shipped volumes, they raise questions about the reliability of crucial oil supply routes.

Potential Ramifications on Oil Prices and Inflation in India:

The attacks, if sustained, could have broader implications for India's economy. Any disruption in the crude oil supply chain may contribute to an increase in oil prices. This, in turn, could lead to inflationary pressures, affecting various sectors of the Indian economy.

Impact on Oil Prices:

As India looks to West Asia for a substantial portion of its crude oil, any disturbances in the region can influence global oil prices. The uncertainty surrounding the safety of shipping routes amplifies concerns about supply stability, contributing to potential price hikes.

Inflationary Pressures:

Rising oil prices often translate into higher costs for various industries, leading to inflationary pressures. Sectors such as transportation, manufacturing, and energy could experience cost escalations, impacting overall economic stability.

The recent attacks on ships in the Red Sea underscore the vulnerability of India's crude oil supply chain. While the full extent of the impact remains to be seen, there are clear indications of potential disruptions and associated economic challenges. As the situation evolves, monitoring its effects on oil prices and inflation in India becomes crucial for stakeholders across sectors.