Post Date : March 21, 2022
The Russia-Ukraine conflict has chocked the Black Sea route creating a hindrance in the Indian trade. Seeking alternative options India is looking at trade through the strategically important Chabahar Port in Iran–to beat shipping snarls and export goods to the Commonwealth of Independent States (CIS). At stake are New Delhi’s annual despatches of about $4-4.5 billion to these nations.
Among other options, Indian government is also looking at trade by ship through China’s Qingdao port and on to the CIS members from there by rail, and exports through the Georgia port.
Countries such as Russia, Ukraine, Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan are part of the CIS. Until January, India’s exports to the CIS countries grew 24% from a year before to about $4 billion. Of this, Russia alone accounted for $2.85 billion and Ukraine $427 million.
As per a source, “The Chabahar Port in Iran is probably the best option to supply to the CIS countries”.
Another source said, that the possible stretching of war for a few months would make the supply of goods to CIS members harder. Thus, the government is considering the best way out of the supply nightmares.
Chabahar port can trim India’s logistics cost by a fifth in container transport to CIS countries, bypassing China or Europe. Currently CIS countries could be reached only through China or Europe.
Located in the Sistan-Balochistan province of Iran, Chabahar port lies outside the Persian Gulf and is easily accessed from India’s western coast, bypassing Pakistan. The port is also exempt from American sanctions.
Under a signed agreement with Iran, India has been developing two terminals at the Chabahar port which would be run by India for 10 years. However, the issue is that the development is not over yet, although the port has been handling some vessels. An exporter believes that the latest crisis is an opportunity for the government to complete the development fast.
With another trade route via Qingdao port being considered to transport the shipment of goods to the CIS countries, the worry is that it’s going to be crowded.
Moreover, certain European ports are already congested and any further disruptions will only exacerbate the container pile-ups. Exporters said European Customs authorities are inspecting all goods to or from Russia transiting their ports to detect potentially-sanctioned cargo. This is aggravating a delay in the clearance of consignments.
Following the war, Russian forces are reportedly shutting off shipping routes. Exporters say that parts of the Black Sea and Sea of Azov are now considered too dangerous for ships to pass through. With airspace over Ukraine closed for civilians and airlines avoiding the Russian airspace, there is a limited air capacity which adds to the supply woes.
Meanwhile, global crude oil prices and insurance costs have gone up sharply as well. Consequently, both shipping and air freight rates have shot up in the wake of the Ukraine crisis.
In recent days, the Federation of Indian Export Organisations (FIEO) has also approached finance minister Nirmala Sitharaman to roll out a freight subsidy scheme for micro, small and medium enterprises (MSMEs), at least temporarily, to blunt the impact of the spike in shipping costs.