MSMEs Seek Force Majeure Relief Amid Gulf Disruptions

On April 7, 2026, as the Gulf war increasingly disrupted raw material supplies from overseas, industry bodies representing micro, small and medium enterprises (MSMEs) with government and public sector contracts called on the Centre to invoke force majeure.

These disruptions have caused logistics costs to surge and have directly impacted MSMEs that rely on imported raw materials or engage in export-oriented activities, making it difficult to meet strict contractual timelines. Sector-specific concerns have also emerged, including requests by container train operators for waivers on stabling and empty wagon haulage charges, and by air cargo operators for relief related to stranded shipments.

Force majeure is typically invoked in extraordinary circumstances such as war or events that obstruct performance, providing relief from penalties and extensions of time without contract termination. MSMEs have sought similar relief, arguing that the present situation mirrors the COVID-19 period, when supply chain disruptions were treated as a natural calamity and force majeure relief was granted.

Standard of Proof for Force Majeure Claims

To successfully invoke force majeure, the affected party must typically demonstrate three key elements: (1) the event was unforeseeable and external to the parties’ control; (2) the event was unavoidable despite reasonable precautions; and (3) the event directly prevented or made it impossible—not merely difficult—to perform contractual obligations. Courts generally apply a strict standard, and mere impracticality or economic hardship is typically insufficient to excuse performance.

The claiming party bears the burden of proof and must provide timely notice to the other party, typically within a specified period after the event occurs, along with documentation of the force majeure event and its impact on performance. Additionally, the affected party is generally required to demonstrate that reasonable mitigation efforts were undertaken to minimize the disruption’s effects.

Impact of Gulf Disruptions on MSMEs

The disruptions have had a severe impact on India’s MSME sector. Container freight rates for some exporters have surged by as much as 250%, with shipping costs rising from approximately $300 to $8,500 in certain cases. Transit times to Gulf destinations have extended from the typical 10-15 days to as long as 40-60 days, severely straining working capital cycles for smaller enterprises.

The disruption has affected an estimated 40,000-45,000 Indian export containers valued at approximately $1-1.5 billion. Crude oil tanker freight rates have spiked by 54% on the Baltic Dirty Tanker Index, while container freight rates on Asia-West Asia routes have jumped from $1,200-$1,800 per FEU to $3,500-$4,500 per FEU—a two-to-threefold increase. War-risk insurance premiums have quadrupled, adding up to $7,000 per container in surcharges.

The agricultural sector has been particularly affected, with freight costs for vegetables surging roughly sixfold to $900 per 29-ton container. The Middle East represents 60-70% of India’s basmati rice exports, and West Asia accounted for 21.8% of India’s total food exports valued at over $50 billion in 2025. Chemical exporters face up to 50% of trade at risk, while plastics sector raw material prices have surged by approximately 60%.

Industry representatives raised the issue at a Service Improvement Group (SIG) meeting reviewing the Government’s response to the disruptions, highlighting the financial and operational stress faced by smaller enterprises.

The Government is examining the relief sought by MSMEs and is providing relaxations and timeline extensions wherever possible.