The government is keeping a close eye on insurance rates and freight costs amid the intensifying conflict in West Asia, an official said on Monday, a day after Iran’s parliament approved a measure to close the Strait of Hormuz, the strategic global oil choke point which connects the Persian Gulf to the Arabian Sea.
The strait carries nearly 25% of global oil shipments, nearly two-thirds of India’s crude oil and half of the country’s LNG imports.
“The Strait of Hormuz is open for trade for now but trade may get impacted if the situation escalates. The part till Jebel Ali Free Zone in the UAE is not facing challenges as of now. Freight rates haven’t increased yet for exporters. We are keeping an eye on insurance costs,” said the official, who did not wish to be identified.
The parliamentary vote is not binding as the final decision rests with Iran’s Supreme National Security Council, which is still deliberating the issue.
Exporters said that any closure of the strait would lead to a surge in shipping insurance premiums and freight costs.
Any alternative route would be costlier and more time-consuming for exporters, said the official.
The Federation of Indian Export Organisations (FIEO) said there are temporary headwinds and there could be some short-term impact on demand and logistics-particularly in the Gulf region, which serves as a crucial hub for Indian exports.
“Increased shipping costs, longer transit times and rising marine insurance premiums may add pressure, especially in price-sensitive sectors,” said SC Ralhan, president, FIEO.
Insurers may increase rates if risks continue to rise, the official cited earlier said, adding that India’s ability to intervene in the matter may be minimal as the country doesn’t own any shipping line.
Indian industries dependent on global supply chains for energy, chemicals, fertilisers, metals and food products could face serious shortages and escalating costs, cautioned experts.
This assumes significance amid escalating tensions, placing India’s westbound exports at fresh risk, especially after the US bombing of Iran’s nuclear sites and subsequent increase in Israel’s airstrikes on Iran, after Israel launched airstrikes on Houthi forces last week.