Managing prolonged uncertainty in the Middle East for businesses and investors

Recent developments in the Middle East have reinstated concerns over the stability of major shipping routes, including the Strait of Hormuz and Bab al-Mandab, and their continued impact on global supply chains, energy markets, and commercial operations more broadly. Since the conflict began in February 2026, shipping disruption has led to rerouting and increased freight costs, while businesses have also faced volatility in energy prices, increased logistics and insurance costs, workforce reductions, and delays to contractual performance and project execution.

War-risk premiums for exposed Hormuz transits, for example, are reported to have increased substantially, with war-risk cover moving towards voyage-by-voyage underwriting. This is not only increasing operating costs but also changing how risk must be assessed, priced and documented before goods are shipped.¹ The effects have been felt beyond maritime trade. Airlines are expected to face an additional $100 billion in jet fuel costs this year due to price volatility,² while construction and infrastructure sectors have been impacted by cost volatility and supply-chain pressures that are affecting tender pricing, project viability and the cost of certain energy-intensive and oil-dependent materials.³ Consumer-facing sectors may also face higher energy, raw material and freight costs, alongside weaker demand.⁴

Despite these challenges, the Middle East remains a crucial hub. As uncertainty persists, the focus for businesses and investors may shift from a temporary suspension of their contract performance to how their contracts and operations can be managed and adapted on a longer-term basis. Whilst force majeure arguments remain relevant, the prolonged and increasingly foreseeable disruption may require a broader review of contractual risk allocation, adjustment mechanisms, sanctions exposure and the scope for commercial renegotiation.

Why prolonged uncertainty changes the analysis

Businesses and investors may have initially sought to rely on force majeure to excuse non-performance of their contractual obligations. Whether that reliance succeeds and the operation and effect of invoking force majeure, however, remains dependent on the governing law of the parties' contract, the precise wording of the clause and the circumstances of each case.

Under English law (as a popular choice of law by parties operating in the region), force majeure is not a term of art. A party may rely on it only where the contract contains a force majeure clause.⁵ In the absence of express wording to the contrary, the English courts have identified requirements that will generally be implied into a force majeure clause. The party invoking force majeure must usually establish that the relevant event was beyond its reasonable control, could not have been avoided by taking reasonable steps, caused the non-performance, and in some cases (subject to the wording of the clause), was unforeseeable.⁶ A contract becoming more expensive to perform or a party no longer having the financial capability to perform the contract will generally not suffice.⁷

Force majeure clauses may impose additional requirements, such as notice within a specified period, evidence of the effect on performance and details of the steps taken to mitigate that effect. The party relying on the clause bears the burden of proof. Parties should continue to preserve records showing causation, operational impact and any mitigation efforts – a general reference to regional instability is unlikely to be enough.

Where the requirements are met, the general principle under English law is that the party relying on the clause is relieved from the relevant obligation on the occurrence of the specified event.⁸ The contractual effect may be suspension, extension of time or, in some cases, a right to terminate after a stated period. This differs from the position in many Middle East civil law-based jurisdictions, where force majeure is typically governed by statute rather than exclusively by contract, and where the establishment of force majeure may lead to the partial or complete termination of the contract.⁹

Regardless of the law applicable to the contract, foreseeability may become increasingly significant as the conflict continues. Parties negotiating or renewing contracts in the face of the ongoing disruption may find it more difficult to characterize the existing situation as an unforeseen event. The same issue may arise where a contract is extended without revisiting how the relevant risks are allocated, making force majeure more difficult to rely on. 

Foreseeability may also prevent parties from relying on the common law doctrine of frustration to seek to bring their contract to an end. Under English law, a contract may be frustrated where a serious event that is both unforeseeable and outside of the parties' control has occurred, which has rendered performance impossible or fundamentally different from what was originally agreed.¹⁰ The threshold for proving frustration under English law is high¹¹ and frustration generally does not exist as a standalone principle under civil-law based Middle East jurisdictions.

Moving from suspension to contractual adaptation and renegotiation

Where performance remains possible but has become significantly more difficult or costly, the more relevant question may be whether the contract contains other mechanisms for adaptation. Hardship clauses for example can allow the parties to renegotiate or adjust their obligations where an unforeseen event makes performance excessively onerous. Price adjustment or review clauses often permit the contractual price to be revisited in response to inflation, tighter credit conditions and heightened market uncertainty. Material adverse clauses may also give parties protection against specified adverse economic or commercial developments. 

These mechanisms are not freestanding doctrines under English law. Their operation will depend on the language agreed by the parties, including any thresholds, notice requirements, evidential tests and consequences. The position may be different where the contract is governed by one of the civil-law based Middle East jurisdictions. Some jurisdictions such as the UAE, Saudi Arabia, Qatar, Bahrain and Oman provide statutory protections allowing a court or tribunal to rebalance a contract where exceptional and unforeseeable events make performance excessively onerous.¹² The availability and effect of those protections will depend on the governing law and cannot be assumed to be the same across the region.

The governing law may not only influence the way in which contractual rights are exercised but also the legal framework for renegotiation. Good faith for example, is recognized in many Middle Eastern legal systems as an overarching principle governing contractual performance and contract interpretation.¹³ By contrast, English law does not recognize a general duty of good faith. Careful contract review and commercial renegotiation in good faith may, nonetheless, play an important role in responding to the effects of the ongoing conflict.

For cross-border contracts, parties should consider the differences between the various legal systems at an early stage. A contract may be English law governed while performance, assets or counterparties are located in jurisdictions with mandatory local rules. The dispute-resolution clause, the place of performance and the location of any enforcement action may also matter alongside the governing-law clause.

Sanctions and changing mitigation arrangements

Sanctions are a key legal and commercial consideration in the context of the conflict. Businesses must monitor and comply with an evolving sanctions landscape, while alternative counterparties, routes and jurisdictions adopted as mitigation measures may create additional sanctions exposure. Sanctions may affect contractual performance, but they do not necessarily render performance impossible under English law, particularly where licences may be available.¹⁴ A party considering suspension or non-performance needs to assess the precise restriction, the availability and timing of any licence, the contractual sanctions wording and whether an alternative method of lawful performance is available.

Parties are advised to carefully review any mitigation measures. A change in shipping route, insurer, bank, supplier or intermediary may reduce one operational risk while introducing regulatory, compliance or enforcement issues elsewhere. Sanctions analysis should therefore form part of the wider contractual and commercial response, rather than being treated as a separate one-off exercise.

Practical steps and how we can help

In this evolving environment, conducting an early and tailored assessment can help businesses and investors protect their position and make informed commercial decisions. The focus is likely to move beyond whether a single event excuses performance and towards finding an appropriate framework to adapt to the ongoing situation. 

Businesses and investors facing prolonged disruption will need to consider not only their immediate contractual position, but also options for maintaining performance, the regulatory consequences of alternative arrangements (including any potential sanctions exposure), and the risk of a dispute arising if commercial discussions do not succeed.

Our experience advising and representing multinational businesses and investors on matters across a wide range of sectors connected with the Middle East region means we are familiar with these issues across jurisdictions. Where possible, we can help identify and assist on mitigating the risks and finding a workable commercial solution, working with local counsel where appropriate. Where that is not possible, we can advise on protecting contractual rights and resolving disputes through arbitration, including the enforcement of arbitral awards.