The conflict involving the United States, Iran, Israel and several other Gulf countries has escalated from a regional security concern to a global commercial disruption event with immediate consequences for international trade. As tensions in the region intensify, Iran has cordoned off the Strait of Hormuz, one of the world's most critical maritime corridors, effectively bringing shipping through the waterway to a near halt. Energy prices have risen quickly, freight costs are rising and war-risk insurance premiums have spiked (and in several cases, cover has been withdrawn altogether). For businesses with supply chains, offtake arrangements or commercial counterparties connected to the Gulf region, the legal and financial consequences are no longer hypothetical.
India depends significantly on countries in the Middle East for its oil and gas requirements, and generally on the Strait of Hormuz for its import requirements, making Indian businesses particularly exposed. The spot Liquefied Natural Gas (LNG) market has already reacted with prices increasing to almost double the prevailing contract rates, and companies seeking to plug supply gaps through spot purchases will face a materially changed cost base. News reports make it clear that Qatar (India’s single largest LNG supplier, accounting for nearly 40% of the country’s annual LNG imports) has declared force majeure on deliveries following Iranian drone strikes on its production facilities. Similarly, Petronet LNG seems to have notified its offtakers (including GAIL (India) and Indian Oil Corporation) of the halt in supplies.
The downstream consequences extend well beyond the gas sector. Fertiliser producers reliant on gas as a feedstock face input shortfalls and rising costs. Steel manufacturers using gas in direct reduction processes are similarly exposed.
These disruptions are testing the terms of existing commercial arrangements. Long-term offtake agreements, commodity supply contracts and shipping arrangements that were structured around assumed route availability and predictable freight and insurance costs are now operating in fundamentally different conditions. War-risk surcharges are being imposed by carriers and while rerouting via the Cape of Good Hope may be an option, it adds both time and cost to voyages, raising questions about who bears those incremental expenses under existing contracts – a question that many agreements simply did not anticipate.
Faced with supply shortfalls, spiralling costs and an inability to perform contractual obligations, businesses across the supply chain have begun invoking force majeure clauses in their agreements. Qatar's declaration is the most prominent example, and it is unlikely to be the last. As these notices multiply, understanding what force majeure means in practice – what it requires, what it permits and what risks it carries – has become an immediate operational necessity.
A force majeure clause is a contractual provision that excuses a party from performing its obligations when an extraordinary event (one beyond its control) makes performance impossible or significantly difficult. While the precise scope of any force majeure clause will depend on the wording of the contract and its governing law, several principles apply broadly across most commercial agreements.
Force majeure is not automatically available and depends entirely on whether the contract contains an express clause, and if so, on the precise wording of that clause. This is also consistent with English law, which governs a significant proportion of international commodity, energy and shipping agreements. Common triggers could include war, hostilities, government restrictions and blocked transport routes — all of which are potentially relevant in the present circumstances.
A critical and often misunderstood point is the threshold that must be met. There is a meaningful legal difference between a contract becoming harder or more expensive to perform, and a contract being truly impossible to perform. Most force majeure clauses require the event to have ‘prevented’ performance - not merely made it costlier or commercially less attractive. A party whose contract has become unprofitable due to rising prices, but who could still technically perform, is unlikely to succeed with a force majeure claim on that basis alone.
Critically, invoking force majeure does not entitle a party to stand still. A party seeking to invoke force majeure must demonstrate that it took reasonable steps to find alternatives, different suppliers, alternative routes, substitute arrangements, etc. This duty to mitigate is both a contractual requirement under most clauses and an implied obligation in common law.
One of the more unforgiving aspects of force majeure in practice, and one that businesses under operational pressure are most likely to overlook, is the notice requirements. Typically, these clauses require formal written notice to be given to the counterparty within a specified timeframe. Missing that deadline, even by a short period, can invalidate an otherwise legitimate claim.
Finally, and importantly, invoking force majeure carries consequences that extend beyond the immediate relief it offers. A force majeure notice can trigger the counterparty's right to terminate the contract or suspend its own commitments. A customer who receives a force majeure notice may be entitled to exit a long-term supply arrangement that was otherwise performing in their favour. Before sending — or responding to — such a notice, the commercial implications must be weighed carefully alongside the legal ones.
This is not a situation that benefits from a ‘wait and see’ approach. Businesses with exposure to Gulf supply chains or commercial counterparties in the region may consider following steps.
Map contractual exposure: Identify every agreement that could be affected, from supply contracts and shipping arrangements to financing documents and insurance policies, and assessing where the risk sits.
Review force majeure clauses: Examine what events are covered,
threshold requirements, trigger events and what procedural conditions apply.
Assess notice obligations now: Identify whether a notice is required, the applicable deadline (which may already be running), the required form and content, and the correct recipient. If you have received a force majeure notice from a counterparty, assess its validity and your response options promptly.
Review your insurance position: Confirm the scope of your marine, cargo, war-risk and political risk cover. Identify any notification obligations to insurers, any gaps in coverage arising from withdrawal or restriction of war-risk policies, and any contractual insurance obligations you may be at risk of breaching.
Governing law and dispute resolution clauses: Review the contracts to understand whether any potential disputes would be referred to arbitration or litigation, the applicable governing law, seat or jurisdiction, and how that forum would approach force majeure and governing law questions. This will help support both the risk assessment and your negotiating position. If needed, renegotiate the dispute resolution clauses to opt for a more neutral and acceptable seat of arbitration and governing law.
Renegotiate contracts: A negotiated amendment to the contract, a temporary price adjustment, a revised delivery schedule or a shared cost-absorption mechanism are often faster, cheaper and less damaging to the commercial relationship than a contested force majeure claim.
Document everything: Maintain a clear and contemporaneous record of the disruption, its operational and financial impact, all communications with counterparties, decisions taken and mitigation steps explored and implemented. This trail will be critical if disputes arise.
Monitor developments continuously: New sanctions, export restrictions and governmental measures are likely to follow in the coming weeks. The legal landscape is shifting rapidly and advice that is accurate today may need revisiting within days.
The situation remains fluid and the full commercial and legal consequences will become clearer as events develop. While the analysis applicable to any particular business will depend on the specific terms of its contracts, it is apparent that businesses with exposure to Gulf supply chains are operating in materially changed conditions and that the contracts governing those relationships were likely not written with this scenario in mind. Reviewing contracts, checking insurance, engaging counterparties and preserving legal rights will place businesses in a significantly stronger position than those who wait for the situation to resolve itself.
About the authors: Kartikey Mahajan is a Partner and Satjit Singh Chhabra is a Senior Associate at Khaitan & Co.
The views expressed are personal.
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
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