Israel-Hamas conflict: Indian exporters may face higher risk premiums, shipping costs

Indian exporters shipping goods to Israel may face higher insurance premiums and shipping costs due to the Israel-Hamas conflict, according to experts.

Israel witnessed a surprise and unprecedented multifront attack by air, land and sea by the Hamas militant group, which rules the Gaza Strip, in its southern parts on Saturday morning.

The International trade experts said the conflict may reduce the profits of domestic exporters but will not impact trade volumes unless war escalates.

"For merchandise exports of India, the war may lead to higher insurance premiums and shipping costs. India's ECGC may charge higher risk premiums from Indian firms exporting to Israel," think tank Global Trade Research Initiative (GTRI) said on Sunday.

ECGC Ltd (formerly Export Credit Guarantee Corporation of India Ltd) is wholly owned by the government of India.

It was set up in 1957 with the objective of promoting exports from the country by providing credit risk insurance and related services for exports.

Mumbai-based exporter and founder chairman of Technocraft Industries India Sharad Kumar Saraf said the conflict may have an impact on Indian exporters in the short run.

"But if the war escalates, things may get bitter for our exporters of that region," Saraf said.

GTRI co-founder Ajay Srivastava said trade may be seriously impacted if operations at the three largest ports of Israel-  Haifa, Ashdod and Eilat are disrupted.

These ports handle shipments of agricultural products, chemicals, electronics, machinery, and vehicles.

India's merchandise trade with Israel happens mostly through Eilat port, located on the Red Sea.

"Fortunately, so far there is no report of port disruption. India-Israel bilateral services trade is estimated to be around $1.3 billion. It may have no impact unless war escalates to involve bigger parts of Israel.

"The real impact would depend on the duration and intensity of the war," Srivastava said.

India-Israel trade in merchandise and services sectors in 2022-2023 is estimated to be $12 billion.

India's merchandise exports and imports from Israel during 2022-23 were $8.4 billion and $2.3 billion, respectively, leading to a merchandise trade surplus of $6.1 billion.

India's key exports to Israel are diesel ($5.5 billion) and cut and polished diamonds ($1.2 billion).

The key imports are rough diamonds ($519 million) and cut and polished diamonds ($220 million); electronics and telecom components like ICs, parts of photovoltaic cells ($411 million); potassium chloride ($105 million) and herbicide ($6 million).

India exports a wide range of IT services to Israel, including software development, IT consulting, and data processing. Both countries have a strong collaboration in R&D in agriculture, water technology, and renewable energy.

According to GTRI, India is a popular tourist destination for Israelis and vice-versa.

As Israel is a leader in medical innovation, Indian hospitals import medical equipment and technology from Israel, and Israeli companies invest in Indian healthcare startups.

Both nations are also negotiating a free trade agreement.

Indian companies like Sun Pharma, Tata Consultancy Services, Wipro, Tech Mahindra, State Bank of India, Larsen & Toubro, and Infosys have their presence in Israel.

Israeli companies have invested in India in renewable energy, real estate, and water technologies and are also setting up R&D centres and production units in India.

Israeli firms have invested (FDI) $286 million in India between April 2000 and June 2023.