IREF urges shift to FOB contracts as freight, insurance and price volatility risks intensify across Middle East trade corridor

The Indian Rice Exporters Federation (IREF) has issued a detailed strategic advisory to its members in response to the deteriorating geopolitical situation in the Iran and parts of the Gulf region, coupled with emerging reports that vessel movements through the strategically critical Strait of Hormuz may face restrictions. As one of the world’s most vital maritime trade arteries—handling a substantial share of global crude oil flows—any disruption in this corridor has immediate and far-reaching implications for freight markets, marine insurance costs, bunker prices and contractual risk exposure for exporters.

Shift from CIF to FOB: A Risk Containment Strategy

In view of the heightened uncertainty, IREF has strongly advised exporters not to undertake new CIF (Cost, Insurance and Freight) commitments for destinations in the affected region. Instead, members are encouraged to conclude contracts on FOB (Free on Board) terms wherever commercially feasible. This structural shift ensures that freight, insurance, and transit-related risks remain with the international buyer, thereby insulating Indian exporters from sudden and potentially severe cost escalations.

The advisory underscores that developments in Iran and the United Arab Emirates could immediately impact bunker (ship fuel) prices. Any spike in crude oil prices may disrupt container and bulk vessel availability, trigger sharp freight rate increases at short notice, and result in steep hikes in marine insurance premiums.

Exporters operating under fixed delivered-price CIF contracts risk margin erosion or outright losses in such a volatile environment. The Federation has therefore urged members to avoid open-ended, unhedged positions and to exercise restraint while concluding new export orders until greater clarity emerges.

India’s Rice Export Exposure: Strategic Dependence on Middle East & Africa

India’s rice trade with Africa and the Middle East together accounts for roughly half of the country’s total rice exports, making developments in these regions strategically significant for the sector.

During April–December 2025 (FY 2025–26), total rice exports to the Middle East reached 3.90 million metric tonnes, generating Rs 27,196.77 crore (approximately $3.12 billion). The average realization stood at Rs 69,723 per metric tonne ($798.84 per MT), reflecting the region’s premium orientation and strong basmati demand.

In comparison, exports to Africa during the same period totaled 7.16 million metric tonnes—almost double the Middle East volume—valued at Rs 24,865.98 crore (approximately $2.85 billion). However, the average realization in Africa was significantly lower at Rs 34,751 per metric tonne ($397.85 per MT), highlighting Africa’s position as a high-volume, lower-margin market relative to the Middle East.

This divergence underscores a key structural dynamic: while Africa drives bulk shipments, the Middle East underpins value realization and profitability.

Basmati Segment: High-Value Concentration in the Middle East

The basmati segment remains particularly exposed to Gulf market developments. Between April and December 2025, basmati exports to the Middle East stood at 3.21 million metric tonnes, valued at Rs 23,771.39 crore (approximately $2.72 billion). The average export realization was Rs 74,148 per metric tonne ($849.93 per MT), reflecting strong consumer preference for premium Indian basmati varieties.

By contrast, Africa imported 0.32 million metric tonnes of basmati worth Rs 2,375.35 crore (approximately $271.22 million), at an average realization of Rs 73,924 per metric tonne ($844.07 per MT). While price realizations are broadly comparable, nearly 90 per cent of basmati exports to these two regions are absorbed by Middle Eastern markets, making the segment particularly vulnerable to Gulf-linked disruptions.

With basmati wholesale prices already rising 10–15 per cent over the past month and Iran serving as a key demand center, heightened price volatility is expected in the coming days. Any shipping or payment disruptions could further amplify market instability.

Non-Basmati Trade: Africa as the Volume Anchor

In the non-basmati category, Africa dominates Indian export flows. During April–December 2025, exports to Africa reached 6.83 million metric tonnes valued at Rs 22,490.63 crore (approximately $2.58 billion), with an average realization of Rs 32,909 per metric tonne ($376.87 per MT). These figures reaffirm Africa’s role as the principal destination for India’s mass-market rice shipments.

The Middle East imported 0.69 million metric tonnes of non-basmati rice during the same period, generating Rs 3,425.38 crore (approximately $391.18 million) at a higher average realization of Rs 49,304 per metric tonne ($563.06 per MT). Although smaller in volume, the Middle East again demonstrates stronger per-tonne value realization.

Top Five Basmati Destinations: Concentration Risk in Gulf Markets

The five leading basmati destinations—Saudi Arabia, Iran, Iraq, the United Arab Emirates, and Yemen—are all located in the Middle East and collectively account for approximately half of India’s total basmati exports.

Saudi Arabia remains the largest market, importing 0.77 million metric tonnes valued at Rs 5,992.30 crore (approximately $687.26 million), with a strong average realization of Rs 78,189 per metric tonne ($896.75 per MT), the highest among the top five destinations. Iran follows with 0.68 million metric tonnes valued at Rs 4,639.17 crore (approximately $533.51 million), though at a comparatively lower average realization of Rs 68,079 per metric tonne ($782.92 per MT), reflecting market-specific pricing and payment dynamics.

Iraq imported 0.57 million metric tonnes worth Rs 4,147.92 crore (approximately $476.15 million), while the UAE and Yemen recorded imports of 0.32 million and 0.30 million metric tonnes respectively. Both markets maintained strong realizations exceeding Rs 71,000 per metric tonne, reinforcing the Middle East’s premium demand profile.

The geographic concentration of these high-value markets in a geopolitically sensitive zone underscores the urgency of the Federation’s advisory.

Freight, Insurance & Market Outlook

In the current environment, exporters face multiple layered risks. A sustained rise in oil prices may increase bunker costs, tighten vessel availability, and push container and bulk freight rates sharply higher. Simultaneously, marine insurance premiums may rise steeply, especially for consignments transiting through high-risk zones. Payment delays, port congestion, or clearance bottlenecks at destination ports could further strain working capital cycles.

IREF is actively monitoring the evolving situation and remains in close communication with exporters whose consignments are in transit or awaiting clearance. Members facing logistical, insurance, contractual, or payment-related challenges may approach the Federation for assistance.

Given the scale of India’s exposure to Middle Eastern basmati markets and the broader trade linkage with Africa, short-term volatility in pricing, freight and insurance is likely. The Federation will continue to assess developments and issue further advisories as necessary to safeguard exporter interests and promote prudent risk management across the sector.