Red Sea blockade threat: Why India’s trade faces a wider supply-chain shock

The Red Sea is once again back in focus, with Yemen’s Iran-aligned Houthis stepping up attacks on commercial shipping. The attacks occurred while the US and Iran remained at odds over a deal to end the conflict, with shipping through the Strait of Hormuz facing severe disruption. The US-Iran truce officially expired on Monday. This has again raised concerns that the conflict could drag on and further escalate tensions in the region.

The Houthis had already declared a naval blockade against Saudi Arabia in July and warned shipping companies against using Saudi ports. Reuters has reported that Iran also signalled to its Houthi allies that the Bab el-Mandeb could be closed if the US escalated its attacks on Iran. The development has raised concerns that the Red Sea threat could increasingly become part of the wider Iran-US confrontation and give Tehran another lever over regional shipping.

A prolonged disruption could mean longer routes, higher freight and war-risk insurance premiums, vessel-capacity constraints, and less predictable delivery schedules. For exporters serving Europe and other markets through the Suez corridor, the consequences could eventually feed into product costs and competitiveness.


“The simultaneous uncertainty in the Red Sea because of Houthi attacks on commercial shipping and in the Strait of Hormuz because of the continuing Iran-US standoff has exposed global trade to a double maritime chokepoint, significantly increasing supply chain risks for businesses,” says Nisha Taneja, senior visiting professor at the Indian Council for Research on International Economic Relations (ICRIER).

From shipping disruptions to trade risks

The most immediate response to a Red Sea blockade would be route diversion, putting pressure on the operational costs of Indian exporters.

Ships unable or unwilling to use the Bab el-Mandeb and Suez Canal would have to travel around the Cape of Good Hope. That adds sailing distance, fuel consumption, and vessel time.

India has already faced this during the earlier Red Sea crisis, when container ships carrying Indian exports were diverted around the Cape. Higher freight costs and longer transit times became a major concern for exporters.

Currently, traders’ concerns go beyond just the extra freight bills.

“Every fresh bout of geopolitical uncertainty in West Asia reminds exporters that logistics is no longer just a transportation function; it has become a business continuity issue,” says Kaushik Datta Sharma, CEO, Liner Division, Parekh Global. “Even when vessels continue to move, uncertainty around routing, insurance premiums, transit schedules, and freight rates makes planning far more difficult for exporters working with committed delivery timelines.”

Adarsh Hegde, MD, Allcargo Global, says prolonged disruption will lead to vessel-capacity constraints, blank sailings, longer transit times, schedule uncertainty, and inventory imbalances. “Longer transit times can force companies to hold higher safety stocks, increasing inventory carrying costs and working-capital requirements,” he says.

The impact of a disruption at this strategic maritime chokepoint can also spread across trade lanes. For example, a shortage of vessels on one route can affect capacity elsewhere, while congestion at alternative ports can create further delays.

Europe, agriculture and other exposed trade

The impact on India’s trade will vary by market and commodity. The exposure is not limited to agriculture, textiles, or other finished exports. India’s trade with Europe spans petroleum products, machinery, chemicals, pharmaceuticals, engineering goods, vehicles and components, gems and jewellery, apparel, leather, footwear, and marine products. India’s goods trade with the European Union (EU) stood at $136.54 billion in 2024-25, including $75.85 billion of Indian exports, according to the Commerce Ministry’s data. A prolonged Suez disruption could, therefore, raise the cost of sending finished goods to Europe, while also delaying machinery, components and other industrial inputs coming into India.

The nature of the cargo will also determine the severity of the impact, according to experts. Time-sensitive and high-value supply chains, such as pharmaceuticals, electronic components, auto parts, engineering equipment, seafood, and processed food, could face longer lead times, higher inventory requirements, and a greater risk of missed delivery windows.

Divya Kumar Gulati, Chairman of the Compound Livestock Feed Manufacturers Association (CLFMA) of India, says price-sensitive and low-margin sectors would be particularly vulnerable because higher freight and longer delivery times can quickly erode competitiveness. “For Indian exporters, the impact is particularly significant in price-sensitive and low-margin sectors. Longer delivery times and higher freight costs could reduce competitiveness in European and Mediterranean markets,” Gulati says.

He says poultry, dairy, and aquaculture/feed businesses are among the livestock and agri segments most exposed if Red Sea disruptions continue, due to their dependence on imported feed ingredients, feed additives, fertilisers, energy and other globally traded inputs. “For poultry and dairy, the most direct transmission could come through feed costs. Imported feed ingredients and additives can become more expensive or take longer to arrive if freight, fuel, and insurance costs rise.”

Aquaculture faces a similar risk because of its dependence on specialised inputs and its export orientation, according to CLFMA.

There is also a crop-to-livestock linkage. Higher fertiliser prices can lead to higher production costs for maize, soybean, and other feed crops, eventually raising feed prices even where livestock companies do not directly import those commodities.

Gulati says India has built substantial fertiliser buffers and diversified import sources in 2026, meaning an immediate fertiliser shortage is not the base case. However, a prolonged disruption, he says, could elevate global input prices and influence future procurement.

Companies are building resilience

Notably, this is not the first supply-chain disruption for Indian trading companies engaged in international markets. The Covid-19 pandemic, the 2021 Suez Canal blockage involving the Ever Given, and the ongoing Red Sea disruptions have already pushed companies to rethink their strategies for managing supply-chain risks.

Rahul Sanghvi, Managing Director and Partner, BCG, says these earlier disruptions have made companies better prepared to respond to route shocks. “So, the response this time is faster and less improvised than it would have been a few years ago,” Sanghvi says.

Regarding the latest threats, companies are also diversifying suppliers geographically, with energy-intensive and chemical-dependent industries looking beyond traditional Gulf suppliers towards West Africa, the US, and Latin America.

Faisal Ahmed, Professor of international business and geopolitics at the FORE School of Management, New Delhi, says Indian traders are increasingly moving from reactive crisis management towards long-term resilience.

“Based on learnings from the past two years, Indian traders are increasingly moving from reactive crisis management to long-term resilience,” Ahmed says, highlighting that a key initiative has been related to diversification. “Various refiners have been exploring sources such as Angola and Venezuela to a larger extent. Some firms are also trying newer multimodal routes, e.g., through the Yanbu Port in Saudi Arabia, but then it also comes to threats because of the Houthis,” he says, stressing that two recently launched government schemes, viz., Resilience and Logistics Intervention for Export Facilitation and Bharat Maritime Insurance Pool, could also support Indian traders in building resilience.

Rerouting cargo, finding alternative corridors

The earlier Red Sea disruption demonstrated that companies could reroute cargo, according to industry observers. But this time, the question is how much that flexibility costs. Taneja says agricultural exporters have previously moved shipments around the Cape of Good Hope because low-value, high-volume products can better absorb additional transit time and freight costs. High-value, time-sensitive, and perishable cargo has less room to absorb such delays.

“Exporters are also increasingly adopting alternative logistics routes based on the nature of their cargo,” Taneja says. This cargo-specific approach is likely to become more important if the Red Sea disruption persists, say experts. Companies, according to experts, may have to decide whether to pay more for alternative logistics, absorb longer delivery times, or pass some of the additional cost on to customers.

Notably, developing alternative trade corridors has been India’s recent response to these evolving threats. Taneja points to the International North-South Transport Corridor (INSTC) as an alternative for trade with Russia, Iran, and Central Asia. While the corridor can reduce dependence on the Suez Canal for these markets, better connectivity is needed for it to deliver greater efficiency, she adds.

The INSTC is, therefore, less an immediate substitute for the Suez route than a longer-term diversification option.

Ahmed also points to newer multimodal options, including routes through Saudi Arabia’s Yanbu port. Such alternatives can help companies reduce dependence on conventional routes, although geopolitical risks can themselves shift from one corridor to another.

The broader lesson for the trading community is that alternatives exist, but they cannot always replicate the scale, cost, and connectivity of established maritime routes. Allcargo’s Hegde says companies are expanding multi-country sourcing, diversifying supplier networks, and optimising their inventory strategies. Digital platforms such as ECU360 can provide shipment visibility and real-time tracking, helping companies make quicker decisions during disruptions.

Sanghvi says companies are also exploring pre-negotiated alternate routing, multiple carrier relationships, and freight contracts that allow cargo to be rerouted without extra surcharges. Sharma of Parekh Global believes better inventory planning, shipment visibility, and route diversification can help exporters reduce the impact of sudden disruptions. For exporters, the objective is increasingly to ensure that a disruption to one route does not automatically become a disruption for their customers.

Gulati says the agriculture and livestock sectors face the same cumulative pressure. “The key risk is not simply whether a particular commodity is physically unavailable. It is the cumulative impact of higher freight costs, longer lead times, energy prices, feed-input inflation, and working-capital requirements,” he says.

The MSME disadvantage

The cost of building this resilience could become a competitive disadvantage for smaller exporters. “Large firms are generally better positioned to absorb these costs and adapt quickly, whereas many micro, small, and medium enterprises (MSMEs) face considerable constraints, placing them at a distinct disadvantage during periods of disruption,” Taneja says.

This could make a prolonged Red Sea disruption particularly significant for India’s export ambitions. Larger companies can maintain additional inventory, negotiate with multiple carriers, and absorb higher freight costs for a period. Smaller exporters operating on thin margins may have far less room to absorb such shocks.

If the Red Sea and Bab el-Mandeb remain under prolonged pressure while the Strait of Hormuz is also disrupted, Indian businesses, including small trading units, could face a rare situation in which two critical maritime chokepoints simultaneously constrain trade.