With no signs of abating the threat to shipping through the Red Sea, Indian oil product exports to Europe have shifted entirely to the safer, but much longer and more costly, route around Africa via the Cape of Good Hope.
Ship-tracking data shows that of all the Europe-bound fuel ships that left India in June and July, not a single one took the Red Sea route that was once the mainstay of Indian exports to Europe and other Western markets. In fact, that has remained the case for most of the past five months, except for a few cargoes that took the seemingly risky route in March and May.
Since late last year, numerous cargo ships have come under attack by Iran-backed Yemeni Houthi rebels near the Bab el-Mandeb Strait, which connects the Red Sea to the Suez Canal. The strait is the narrowest but shortest sea route connecting the Arab Peninsula, Northeast Africa and the Arabian Sea to the Mediterranean Sea and beyond. The route is considered a vital artery for global goods and energy supplies. The Houthis claim they are targeting ships linked to Israel and its allies in retaliation for Israel's military attacks on Gaza.
According to trade sources, taking the Cape of Good Hope route instead of the Suez Canal not only significantly increases shipping costs but also adds 15 to 20 days to the voyage from India to Europe. Due to higher risk premiums and longer voyage times, cargo shipments between Asia and Europe, and Asia and North America, are suffering in the form of a significant increase in shipping costs.
Before the security crisis in the Red Sea, tankers transporting fuel from India to Europe rarely chose the long-distance route around the African continent, and were almost entirely dependent on the Red Sea-Suez Canal route.
“The Suez Canal has effectively ceased to be a regular waterway for Indian exporters due to shippers' preference for safer voyages, even if it means higher costs and longer travel times. As a result, India's (oil) product exports have fallen 25% between the second half of 2023 (July-December) and the first half of 2024 (January-June),” said Victor Katona, head of crude oil analysis at commodity markets analysis firm Kpler.
Indian fuel exports to Europe were little changed from the previous month at just over 276,000 barrels per day in July, according to ship-tracking data from Kpler, with all shipments taking the long-distance route around Africa, as in June.
The data showed Indian petroleum fuel exports to Europe have fallen to between 250,000 and 300,000 bpd in recent months from a record high of about 425,000 bpd in December 2023. But overall Indian fuel exports have remained stable at around 1.2 million bpd, with increased shipments to Asian markets and Australia offsetting lower supplies to Europe.
“Asia is the current focus market for India, while the Middle East is tapping into European petroleum product demand, mainly in the diesel and jet fuel areas,” Katona said.
Amid growing concerns that the conflict between Israel and Hamas could escalate into a broader Middle East crisis with increased involvement from Iran, other regional countries and even the West, attacks on commercial shipping in and around the Red Sea have intensified in recent weeks, making the Red Sea-Suez Canal route highly unlikely to be accepted by shipowners in the foreseeable future.
India has traditionally not been Europe's largest fuel supplier, which relies heavily on Russia for energy imports, but as Europe began to shy away from Russian crude and fuel in the aftermath of Moscow's invasion of Ukraine in February 2022, India became the largest buyer of Russian seaborne crude and a major fuel supplier to Europe with all shipments passing through the Red Sea.
Notably, shipments of Russian oil through the Suez Canal-Red Sea route have remained largely unaffected by the ongoing crisis, as Russia is considered an ally of Iran and Yemen’s Houthi rebels are clearly backed by Tehran.
“Indian refiners import Russian crude on a delivery basis, which means they have no say in which route those cargoes are transported… Generally speaking, the majority of Russian (crude) exports to India still go through the Suez Canal, so in terms of exposure, around 40 percent of Indian (crude) imports are still dependent on the Egyptian waterway,” Katona said.
Before December 2023, the Suez Canal and the Red Sea accounted for about 10% of global crude oil traffic and about 14% of global petroleum product traffic. However, many major shipping companies now avoid this route and opt to bypass Africa, so the share of global crude oil and petroleum product traffic passing through the Suez Canal has dropped significantly. However, Russian crude oil stands out as an exception.
