The rapidly escalating conflict involving Iran has shifted from a geopolitical concern to a direct commercial threat across global supply chains. Over the past few weeks, disruption in and around the Strait of Hormuz has moved from anticipated risk to acute operational reality. Multiple energy producers have declared force majeure, while tankers and cargo routes have suffered interruptions, detentions, and physical damage.
For businesses with supply, logistics, construction, or delivery obligations touching the Middle East – or with counterparties affected by the conflict – now is the time to review your contracts and take proactive steps to protect your legal position.
Commercial fall-out
The commercial fall-out from the Iran conflict is accelerating at speed due to:
- partial closure of the Strait of Hormuz, severely affecting transit of LNG, crude and refined products;
- multiple tankers stuck, detained, or diverted, leading major producers across the Gulf to suspend shipments;
- impact on global supply chains, with logistics routes constrained, airspace closures across the GCC, and heightened insurance costs or withdrawn cover for vessels operating in the region; and
- widespread force majeure declarations, including from significant regional and global enterprises needing immediate contractual relief.
However, there is a common misconception that a contract referencing “war” or “embargo” guarantees protection. In practice, courts and arbitral tribunals apply a strict three part test:
- The event must qualify – It must fall expressly within the contractual definition of force majeure (e.g., war, sanctions, embargo).
- The event must prevent performance – Performance must be legally or physically impossible – not merely more expensive or commercially undesirable.
- Notice and mitigation must be followed precisely – Even if criteria (1) and (2) are met, late or deficient notice can completely invalidate a force majeure claim.
Under English law, force majeure remains a contractual mechanism only – its applicability depends entirely on how the clause was drafted. If the contract lacks a force majeure clause, parties must consider alternative doctrines like frustration, which sets a much higher bar.
Implications for clients
For clients engaged in construction or infrastructure projects particularly within the GCC, the implications are especially significant:
- FIDIC’s “Exceptional Events” regime requires that the event be unforeseeable, unavoidable, and beyond both parties’ control. The Iran attacks and resulting regional disruption satisfy these criteria.
- Contractors may be entitled to extensions of time where logistics and site access are impeded, though cost relief will remain limited.
- Airspace closures, government directives, and disrupted supply chains are already producing knock on effects across major construction programmes.