IMEC, Indo-Pacific Routes Crucial for Reducing Hormuz Dependence: EY Economy Watch Report

India Urged to Diversify Trade Routes Amid Rising Economic Uncertainty

A recent report by EY, titled the Economy Watch report for May, has highlighted the need for India to diversify its trade routes and accelerate the development of alternative connectivity corridors to reduce its reliance on the Strait of Hormuz. The report comes in the wake of mounting pressures emanating from the West Asia crisis and the changing world trade and economic order.

According to the report, India may need to recast its growth strategy to mitigate the potential long-term damage to its medium to long-term path. In response to the rising economic uncertainty, Prime Minister Narendra Modi has called for austerity measures, including a reduction in gold imports, a cutback in foreign travel, and a reduction in domestic fuel consumption.

The EY report emphasizes the importance of preparing for unanticipated economic shocks and vulnerabilities. To achieve this, the government may consider building strategic reserves for essential commodities, including crude oil, LPG, fertilizers, processed and unprocessed rare earth materials, and basic medicines and critical medical equipment.

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The report also highlights the need for a sharper shift towards electric vehicles and accelerated development of indigenous technologies, including Thorium-based production for green and nuclear energy. Additionally, the government may need to re-strategize the achievement of sustainable levels of current account and fiscal imbalances.

Recent diversification of petroleum sources has helped India reduce its dependence on the Strait of Hormuz. However, the report notes that further diversification and acceleration of alternative trade routes, including the India-Middle East-Europe Economic Corridor (IMEC) and the Indo-Pacific corridor covering the Malacca Strait, are necessary to mitigate the risks associated with the Strait of Hormuz.

The report also emphasizes the need for a faster pace of exploitation of domestic oil finds to reduce reliance on imported oil. With oil prices increasing by about 50 per cent and traffic through the Strait of Hormuz falling by more than 90 per cent from pre-conflict levels, India imports 88 per cent of its crude oil needs and roughly half of its natural gas requirement via the Strait of Hormuz.

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