Why in the news?

  • Israel and Hamas reached a ceasefire under the mediation of the USA and Egypt.

Israel–Hamas Ceasefire and Its Impact on Global Trade

  • Channels of Impact on Global Trade:
    • Maritime Route Restoration:
      • Ceasefire reduces security threats along the Red Sea and Bab-el-Mandeb Strait.
      • Resumption of normal passage through the Suez Canal shortens delivery time and reduces fuel consumption.
      • Enhances reliability and connectivity of Asia–Europe maritime trade.
    • Lower Freight and Insurance Costs:
      • Conflict-driven “war-risk” insurance premiums and shipping charges decline.
      • Reduced logistical costs benefit exporters, particularly in low-margin sectors like textiles, marine products, and electronics.
    • Stabilisation of Energy Prices:
      • The ceasefire reduces the “geopolitical risk premium” on crude oil prices.
      • Stable oil prices lower global inflationary pressures and ease current account deficits for energy-importing nations.
    • Revival of Trade Confidence:
      • Improved predictability in shipping schedules encourages new contracts.
      • Boosts investment confidence in port logistics and supply chain management.
    • Relief to Developing Economies:
      • Developing nations dependent on Suez routes witness reduced freight volatility.
      • Improved trade competitiveness enhances export recovery for Asian and African economies.
  • Specific Implications for India:
    • Reduced Export Costs: Around 60% of India’s Europe-bound trade passes through the Suez Canal. Ceasefire lowers freight and insurance costs, improving export competitiveness.
    • Energy Security: Lower global oil prices help India reduce its import bill and maintain fiscal stability.
    • Supply Chain Relief: Indian exporters in sectors such as garments, machinery, and chemicals gain from reduced shipping delays.
    • Strategic Advantage: Supports India’s efforts under the India–Middle East–Europe Corridor (IMEC) initiative for trade diversification and maritime resilience.
  • Limitation:
    • Fragility of Ceasefire: Renewed violence or instability in Gaza could again disrupt trade.
    • Regional Actors: Houthi attacks in Yemen or Iran–Israel tensions may still threaten shipping lanes.
    • Insurance Market Caution: Full normalisation of premiums may take time.
    • Infrastructure Limitations: Ports and logistics networks need upgrades to handle sudden trade surges.