OUT-LAW ANALYSIS 5 min. read
Delays to ships in the Strait of Hormuz continue to have contractual impacts for companies. Photo: Majid Saeedi/Getty Images
05 Jun 2026, 3:57 pm
Disruptive external events, particularly those driven by geopolitical instability, are again at the forefront of commercial risk across the Middle East.
The current escalation in regional conflict is already having a material impact on logistics, trade routes, insurance markets and supply chains. Disruptions to maritime transit through key corridors such as the Strait of Hormuz, alongside rerouted shipping, rising war risk premiums and extended delivery timelines, are affecting businesses well beyond the immediate area of conflict.
For purchasers and other downstream businesses operating in or dependent on the region, these developments are not abstract risks but operational realities that are already influencing contract performance and commercial outcomes.
In practical terms, downstream businesses are experiencing disruption in a number of ways. Travel restrictions, security concerns and supply chain breakdowns can all slow down logistics and slow delivery of goods and services, while administrative delays may also arise.
In parallel, sanctions regimes can shift rapidly in response to geopolitical developments, affecting counterparties, insurers, transportation and payment channels. These factors can lead to partial or total non-performance, particularly where timing is critical.
Even where performance remains technically possible, downstream businesses may face unfavourable consequences such as increased costs, pricing volatility, reduced quality of goods or services, and overreliance on high-risk suppliers.
Against this backdrop, contractual drafting becomes critical. One of the most common pitfalls is failing to review contracts through a disruption and disputes lens before execution. Clauses that appear technical, such as those governing performance standards, limitations of liability or supplier rights, can significantly affect a customer’s remedies and recoverability.
For example, limitations of liability may carve out specific events or cap exposure in a way that leaves downstream businesses under protected, while poorly defined performance standards or KPIs can make it difficult to enforce quality requirements where suppliers substitute materials or reduce service levels. The governing law of the contract also plays a crucial role, as different legal systems apply these provisions in materially different ways.
Force majeure clauses themselves remain the primary starting point in any disruption scenario. However, their effectiveness depends on both their drafting and the governing law. The key question is not simply whether a disruptive event has occurred, but whether that event has impeded performance in the manner required by the contract and/or the underlying governing law.
In many cases it is not sufficient for performance to become more difficult or more expensive; it must become objectively impossible. If alternative means of performance exist and are contractually permissible, force majeure relief may not be available.
Material adverse change (MAC) clauses are another area requiring careful attention. These clauses operate differently from force majeure provisions and do not require performance to be impossible. Instead, they focus on whether there has been a significant shift in the risk profile of the transaction or counterparty. Under UAE law, MAC clauses are assessed through general interpretation of contract principles, including the doctrines of good faith and abuse of rights, and their enforceability heavily depends on how clearly they are drafted.
Clauses that define materiality using objective and measurable criteria, and that appropriately allocate systemic risk, are far more likely to be effective than broadly worded provisions.
Closely related are change in law and sanctions clauses. These may be triggered where government actions, such as new legislation, regulatory measures, or directives like border closures or movement restrictions, affect the performance or the cost of the contract. Whether these clauses apply depends on how terms such as “law”, “government” and “authority” are defined. When engaged, they often provide both time and cost relief, and can therefore be deployed by suppliers as a tool to shift risk or mitigate exposure. However, their application is highly fact specific and dependent on precise drafting.
Liquidated damages provisions also play a leading role in force majeure scenarios. These clauses fix in advance the amount payable for breach, typically delay, and therefore determine the financial consequences of non-performance. Where a force majeure event is invoked, however, the key issue becomes whether it operates to excuse delay such that liquidated damages do not accrue, rather than merely altering the allocation of risk. In practice, this will depend on the interaction between the force majeure provision and the liquidated damages regime and, in particular, on whether the contract provides relief from delay liability in the relevant circumstances.
Termination, compensation and other remedies clauses should also be clearly structured to ensure that downstream businesses understand their entitlements in the event of non-performance. In parallel, dispute resolution clauses must be approached with care. Poorly drafted provisions – whether due to vague governing law and jurisdiction terms, unclear pre-litigation procedures or an unfavourable forum – can create significant disadvantage when disputes arise.
This is particularly important because some jurisdictions offer more flexible remedies, such as interim relief, injunctions and specific performance, which can be critical to preserving rights or compelling performance during disruption. These remedies may be less accessible or more difficult to obtain in other forums. As such, the selection of dispute resolution mechanisms can materially affect both strategy and outcome, particularly in cross-border contexts where enforcement considerations are paramount.
In many cases, disputes escalate not from a single issue but from a breakdown in communication and process. Downstream businesses may encounter a lack of transparency from suppliers regarding performance challenges, vague or insufficient delay notices, and unilateral price increases. These issues can be mitigated through robust contractual provisions that include audit rights, ‘step-in’ rights and clear reporting obligations, balanced against the need to maintain a workable commercial relationship.
Downstream businesses are likely to face a number of recurring claims related to disruption. Requests for extensions of time are typically the first step, as suppliers seek to relieve themselves from liability for delay, particularly exposure to damages or termination. While granting such extensions may avoid immediate dispute, they require careful consideration of the broader commercial impact, including the feasibility and cost of alternative supply. Price renegotiation demands often follow, driven by increased costs of labour, materials or logistics.
Although force majeure clauses do not always confer entitlement to additional payment, suppliers may rely on other provisions or seek to renegotiate commercially. Suspension of performance is another common development, where suppliers assert that performance has become impossible or substantially impeded. For downstream businesses, this creates immediate operational and scheduling risks.
There is also the risk of downstream liability, where downstream businesses remain exposed to third parties despite obtaining relief upstream. This highlights the importance of aligning obligations and remedies across contractual tiers.
In light of these risks, it is essential for downstream businesses to take proactive steps. A targeted contract audit should focus on key clauses such as force majeure, change in law, hardship, termination, and dispute resolution provisions. At the same time, practical measures can strengthen a customer’s position, including tightening notice and evidence requirements, carefully reserving rights in correspondence, and using without prejudice discussions to maintain flexibility.
Downstream businesses should also proactively mitigate losses - including considering interim arrangements to preserve supply, such as diversifying suppliers or logistics routes - and make strategic decisions about when to renegotiate commercially and when to enforce contractual rights.
Ultimately, navigating disruption events requires a balance between legal rigour and commercial pragmatism. Acting early, maintaining detailed records, and avoiding passive acceptance of adverse positions are critical.
Downstream businesses should develop a clear internal view on non-negotiable issues and escalation thresholds, ensuring that legal strategy aligns with broader commercial objectives. Preparing for formal dispute resolution, whether arbitration or litigation, should be part of this process, even if it is not immediately pursued.
These steps will place downstream businesses in the strongest possible position to manage disruption and protect value in an uncertain environment.
Co-written by Suzan Shaban of Pinsent Masons
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