India's rice exporters move to FOB terms to avoid rising geopolitical costs after Gulf trade routes are disrupted

India's Rice Export Ambitions Face Geopolitical Headwinds

India’s rice export campaign remains robust, yet the journey toward its ambitious annual target is now challenged by mounting geopolitical uncertainties. By the close of January 2026, the nation had already dispatched approximately 17.08 million tonnes of rice, spanning both basmati and non-basmati types. This leaves about 3.7 million tonnes to be shipped to achieve the full-year goal of 20.8 million tonnes.

Early-year figures highlight this momentum: in the first two months, exports totaled 1.3 million tonnes worth $599.3 million, marking a 5% increase in volume compared to the previous year. However, export values dropped by 11.2%, reflecting significant downward pressure on prices, with the average export price falling to $464.1 per tonne—a 15.4% decline year-on-year.

West Asia remains the dominant destination, absorbing around 5.38 million tonnes of Indian rice between April 2025 and January 2026. This region accounts for a striking 70% of India’s total rice exports, underscoring its pivotal role in meeting the current fiscal year’s objectives. The reliance is especially pronounced for premium basmati rice, which is the mainstay of exports to Gulf nations.

Logistical and financial hurdles have intensified. Rising instability in West Asia has led the Indian Rice Exporters Federation (IREF) to recommend that exporters avoid new CIF (Cost, Insurance and Freight) contracts, instead favoring FOB (Free On Board) terms to reduce exposure. Several shipments sent in February remain stuck due to disruptions in shipping lanes, creating a dual challenge: slowing the export pipeline just as the year-end push begins, and leaving exporters with unpaid invoices for rice already delivered but not received.

The Cost Squeeze: Freight, Insurance, and Price Volatility

The immediate threat to India’s rice export surge is not only geopolitical but also financial, as the cost of transporting goods has soared. Escalating tensions in the Middle East have created a perfect storm of rising expenses and stranded shipments, squeezing exporter margins and complicating the final push to meet the annual target.

The closure of the Strait of Hormuz is a critical pressure point. Iran’s declaration that the waterway is “closed” has left vessels facing the risk of attack. This chokepoint is vital for India’s energy imports, with 35–50% of India’s crude oil and a large share of LNG shipments passing through. Any prolonged disruption would force costly rerouting, directly increasing India’s import bill and adding to the nation’s overall trade cost burden.

These energy shocks are driving up costs throughout the shipping sector. Insurance providers are withdrawing war-risk coverage for vessels in the Gulf, leaving tankers exposed. For example, the war-risk premium for a $100 million tanker has jumped from $200,000 to $1 million. The IREF has cautioned that insurance premiums could “spike steeply,” dramatically increasing the cost of securing cargo transport—an expense that must be absorbed somewhere in the supply chain.

Freight rates are also climbing. The IREF has warned that bunker fuel prices could rise, and both container and bulk freight rates may surge without warning. This volatility is already disrupting trade, with at least 150 ships stranded near the strait, causing a backlog that is expected to ripple across global shipping lanes, delaying shipments and increasing costs for all cargo, including rice.

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In response, the Indian Rice Exporters Federation is urging exporters to transition from CIF to FOB contracts. This shift places the responsibility for freight and insurance on the international buyer, insulating Indian exporters from runaway costs tied to fixed-price agreements. The move highlights how rapidly the cost environment has deteriorated and the vulnerability of the current export pipeline.

Market Shifts and Competitive Dynamics

The market’s reaction to these risks has been swift and strategic. The IREF has moved from issuing warnings to providing concrete operational guidance, advising exporters to adopt FOB terms and avoid new CIF contracts for Gulf shipments. This approach shifts the burden of rising freight and insurance costs to buyers, protecting Indian exporters from losses on fixed-price deals. The scale of the challenge is significant, with over 400,000 tonnes of Basmati rice currently stranded and multiple shipments delayed.

This risk aversion is prompting a rapid reallocation of export capacity. In February 2026, all scheduled vessels were redirected to West Africa. During the third week, 166,500 tonnes from Kakinada were set to load for West Africa, with Benin as the largest recipient. This pivot is a practical response to the blocked Gulf routes, consolidating logistics on the east coast and supplying a market less affected by the current crisis, helping maintain export momentum toward the annual target.

Globally, the competitive landscape is evolving. On one hand, India faces less competition from the U.S., as the American all-rice export forecast for 2025/26 has been reduced, with long-grain exports down by 3 million cwt to 56 million. This reduction, driven by policy changes and competition in Latin America, eases some pressure on India’s long-grain exports. However, Pakistan is gaining ground in Haiti, a key market for U.S. milled rice, which could challenge India’s position in the Caribbean—a region it has traditionally served.

In summary, the market is actively adapting. Indian exporters are pulling back from the most volatile regions, shifting to safer but potentially less profitable FOB terms, and redirecting shipments to Africa. While this strategy protects cash flow and ensures shipments clear, it comes at the cost of retreating from the lucrative Gulf market. The competitive landscape is shifting, with U.S. exports declining but Pakistan rising in key markets. For India, the route to its export target now leads through West Africa rather than West Asia.

Key Drivers, Risks, and What Lies Ahead

India’s ability to reach its rice export target now depends on several crucial factors. The most important catalyst for relief would be a reduction in Middle East tensions and the reopening of the Strait of Hormuz. The closure has already brought shipping to a near standstill, with at least 150 ships stranded and a significant portion of India’s crude and LNG imports blocked. If the situation improves and the strait reopens, it would allow for the movement of both stranded and new vessels, stabilize freight and insurance costs, and ease the spike in global oil prices that is inflating India’s import bill. This would be the clearest sign that the acute cost shock is easing.

The main risk, however, is a fundamental change in the export model that could erode India’s competitiveness. The shift to FOB terms is a necessary defensive measure, but it may make Indian rice less attractive to buyers, as they must now shoulder higher freight and insurance costs. This could price Indian rice out of certain markets, especially if competitors can offer lower landed costs. The vulnerability is significant, as trade with Africa and the Middle East together accounts for about half of India’s rice exports. While moving away from the high-value Gulf market is prudent for risk management, it carries the long-term risk of losing market share to rivals.

In the short term, several indicators warrant close attention. First, the February 2026 export data will reveal how much rice was shipped before the advisory and how much remains stranded, providing a concrete measure of the disruption’s impact. Second, any updates to the IREF’s guidance should be monitored. The Federation has already urged exporters to exercise restraint in accepting new orders, reflecting ongoing caution. Any further tightening of recommendations—such as a broader ban on Gulf shipments or a shift to FOB across all routes—would confirm that the risk environment remains severe. Ultimately, while the industry is adapting, its ability to sustain growth depends on a resolution to the geopolitical crisis and careful management of the new, costlier trade landscape.