Force Majeure, Frustration and Contract Renegotiation in Times of Geopolitical Turbulence

What you should do now

• Review key contracts: Identify any force majeure, termination, suspension or renegotiation provisions, and understand how risk is allocated.
• Assess impact on performance: Determine whether current disruptions prevent, hinder or delay performance, and document the causal link.
• Preserve your rights: Check and comply strictly with any notice, timing and mitigation requirements to avoid losing contractual protections.
• Engage early with counterparties: Open commercial discussions (on a suitable basis, such as a ‘without prejudice’) to manage expectations, explore workarounds and protect long‑term relationships.
• Take advice before acting: Seek legal advice before taking any substantive action, such as invoking force majeure, frustration or termination provisions, and carefully manage any commercial discussions to be on a ‘without prejudice’ or ‘reserving rights’ basis as appropriate.

What is happening?

In retaliation for the attacks by the United States and Israel, Iran has reportedly impeded maritime traffic through the Strait of Hormuz – a chokepoint through which roughly 20% of global oil supply normally transits – resulting in a sharp decline in tanker movements and spikes in global energy prices. Maritime vessels are reportedly being struck and there are also reports of laying maritime mines in the Strait.  

In addition, the attacks have resulted in multiple producers halting production and being reported to have declared force majeure, including in relation to Qatar’s LNG productions facilities (servicing around 20% of the global LNG market).

At the same time, renewed attacks on maritime vessels in the Red Sea and broader regional instability have forced shipping companies to suspend or reroute voyages, increasing transit times and freight costs and placing additional pressure on global supply chains. Against that backdrop, parties may increasingly look for ways to manage risk and allocate losses arising from these events.

Force majeure vs frustration – why the distinction matters

Before we explain how these two avenues may apply, it’s important to understand the difference between them. When contracts come under strain, the legal pathway chosen can determine whether a commercial relationship survives or ends abruptly.

Force majeure…

• needs to be actively exercised (if available in the contract)
• may suspend or excuse performance temporarily
• may preserve the commercial relationship.

Frustration…

• operates by law
• applies only in exceptional cases
• automatically ends the contract.

Force majeure

Force majeure relief is available only if the contract expressly provides for it. Whether a party can rely on force majeure depends entirely on the wording of the clause, including the events covered, the impact required on performance, and any notice and mitigation obligations.

Parties to a contract may specifically excuse non-performance of a contract upon the occurrence of certain events in the form of a ‘force majeure’ clause. Relief under a force majeure clause in a common law contract will depend on the content of the clause itself. Such a clause may excuse or suspend the performance of contractual obligations while the force majeure event persists. If the non-performance is extended or becomes permanent, the force majeure clause may provide for a right to terminate the contract. In the absence of a force majeure clause, parties to common law contracts cannot obtain force majeure relief and have to rely on the narrower doctrine of frustration, which is discussed below.

Why increased costs are not enough

A change in the profitability of the contract or increase in cost of performance is typically not enough to amount to force majeure. To invoke force majeure relief, the non-performing party would need to show that the relevant force majeure clause has been triggered which will depend on the precise language and intent of the force majeure clause.

Typically, a force majeure clause will:

• require a force majeure event to be beyond the affected party’s control, typically listing a series of events that are examples of matters which are considered as typically beyond such control
• specify the effect on a party’s performance which the event must have in order for the clause to apply (for example prevent, hinder or delay)
• provide whether reasonable measures have to be undertaken to mitigate the effect of the event, and
• set out the consequences on the parties’ contractual responsibility when a force majeure event occurs.

How force majeure may apply in current market circumstances

• Force majeure events beyond the parties’ control. Usually rising prices or market shortage in themselves would not be defined as force majeure events. Nevertheless, ‘war’, ‘hostilities’ or ‘sanctions’ are common force majeure events. A party to the contract may be able to invoke force majeure protection if its performance is affected as a consequence of the conflict. Contracting parties and Courts may ask themselves, was it the conflict that prevented, hindered or disrupted performance or some consequential, indirect or flow on effect? How direct the link between the conflict and the effect on performance will depend on how the clause is worded. The present situation may also fall within a catch-all provision typically included in force majeure clauses: ‘events, circumstances or causes beyond the reasonable control of the parties’.
• The force majeure event has prevented, hindered or disrupted the performance of its contractual obligations. Simply because a contract has become more expensive to perform does not mean that a party has been prevented, hindered or disrupted in its performance. English and other common law courts have drawn a distinction between ‘prevent’ and ‘hinder’. Events which do not literally prevent the performance of a contract but render continued performance commercially impractical or more difficult may be considered a ‘hindrance’. Whether disruption to shipping routes or energy supply meets these thresholds will depend on the wording of the clause in context and the factual link to non‑performance.

Prevent: performance is legally or physically impossible.

Hinder: performance is significantly impeded or made more difficult.

Delay: performance is not able to occur within the contractual timeframe.

• There were no reasonable steps the party could have taken to avoid the effects of the force majeure event. A force majeure clause will typically impose an obligation on the affected party to take all reasonable steps to avoid or mitigate the force majeure event or its consequences such as sourcing from alternative suppliers. Typically, force majeure can only be invoked if it is not possible to avoid the effects. This does not mean though that a party is required to sacrifice its own contractual rights. An English Court recently held that a reasonable endeavours obligation in a force majeure clause did not require a contractual party to accept payment in a different currency when the contract required payment in US dollars, payment in US dollars being prevented due to sanctions.^[1]
• The consequences. Usually, a force majeure clause will suspend performance for a certain time period but then allow either party to terminate the agreement. Given uncertainty around the duration of the current conflict , the possibility of termination is an important factor to weigh up when choosing to invoke force majeure.

Why notice timing matters

Finally, it is important for the non-performing party to comply with any notice or other requirements imposed by the force majeure clause. Often, a party is required to invoke force majeure immediately or within a certain number of days of its performance being affected and not doing so may result in a party losing the ability to claim force majeure. One of the benefits of a force majeure clause is to improve certainty around when a force majeure event is taking place. If a party does not give notice, that certainty is lost. Conciliatory parties may prefer to negotiate over whether a force majeure event has, in fact, taken place rather than issue a notice but such an approach can destroy the benefit of the force majeure clause. It may be better to issue notice of a force majeure event and negotiate afterwards. Otherwise, if litigation later ensues, a court properly interpreting the contract may find that the force majeure clause was never triggered and the doctrine of frustration – which the parties had sought to avoid – is all that might be available. However, the appropriateness of giving notice will depend on the clause and circumstances in question.

Frustration under common law

Frustration is a blunt and high‑risk doctrine. It applies only in exceptional circumstances and, if triggered, automatically brings the contract to an end — regardless of whether the parties wish to preserve the relationship.

An alternative ground for contract relief in the absence of a force majeure clause is the doctrine of frustration which brings a contract to an end automatically, without either party’s act or election, and the parties are discharged from further liability under it.

Unlike force majeure which determines how outstanding obligations should be resolved in the event of a foreseeable event, the doctrine of frustration concerns the treatment of contractual obligations in the event of an unforeseeable event which makes the performance of contractual obligations impossible or ‘radically different’ from what had been agreed in the contract such that it would be unjust to hold the parties to the strict contractual obligations. Upon the occurrence of such an event, the contract is frustrated and the result is that both parties are automatically discharged from their contract by operation of law. The precise relief available will depend on the governing law of the contract and the relevant statutory provisions under the applicable law.

Courts apply frustration narrowly – and only in exceptional circumstances

The English and other common law courts apply the doctrine of frustration within narrow limits and it may only be relied on under exceptional circumstances. A mere change in the profitability of a contract or increase in cost to perform the contract will not result in a frustrating event, although it might if the increase is astronomical.

Further, the doctrine of frustration does not apply where the matters relied on are the fault of one or both parties or where the risk has been expressly allocated under the contract. For example, it will not apply where a clause of the contract (such as a force majeure clause) deals fully and completely with an event that would otherwise, absent the clause, frustrate the contract. For frustration to apply, the non-performing party will typically be required to show that:

• An unforeseeable event has occurred i.e., the particular event was not provided for by the parties in the contract. Whether an event was unforeseeable is determined by the date at which the contract was entered into by the parties. However, if the contract contains a force majeure clause that deals with the otherwise frustrating event, such as ‘war’, ‘hostility’ or ‘sanctions’, the non-performing party may not be able to rely on the doctrine of frustration.
• The unforeseeable event has rendered performance under the contract impossible or radically different from what was agreed. For instance, a supply contract may be impossible to perform if the seller is not able to obtain the relevant products itself or raw materials to produce the products. However, a contract will not be frustrated where there is an alternative method of performance and no fundamental difference between the original and alternative method of performance. For instance, it will be difficult to establish frustration if a supplier under a supply contract is no longer able to obtain crude oil from the Middle East but is able to obtain crude oil with the same specifications and delivery method from the U.S., even if the supplier’s obligations are more difficult or expensive to perform.

Ongoing widespread disruption to global shipping routes, airspace closures and supply chains arising from the current conflict may provide factual scenarios in which frustration arguments are tested. For example, the effective closure of a major maritime corridor or the suspension of insurance coverage for vessels transiting a conflict zone may fundamentally alter the contractual assumptions underpinning transport or energy supply agreements.

Remember that frustration ends the contract automatically

As frustration brings a contract to an end automatically, it is desirable for parties who do not wish to continue their contract or maintain their commercial relationships. For parties who do want to maintain their commercial relationships, invoking a force majeure clause may be preferrable if the clause provides for an extension of time or suspension of the performance of contractual obligations rather than bringing the contract to an automatic end.

Other termination or suspension provisions or entitlements

If force majeure and frustration do not apply, contracts may contain other provisions that may trigger price reviews, hardship mechanisms or termination or suspension rights.

For instance, a sale contract may provide that the seller is entitled to review the sale price if the cost of raw materials increases by a certain percentage and failing agreement on the reviewed price a termination right applies. Conversely, it may be the case that any non-performance by one party of its contractual obligations due to the market shortage and/or rising prices constitutes an event which entitles the other party to terminate the contract under a termination clause.

In either case, the party seeking to rely on termination or suspension needs to adhere strictly to the notice requirements in the contract. Any failure to comply with those requirements may render the notice invalid.

Repudiatory breach: Termination rights beyond those in the contract

Under common law, even if not expressly provided for, a party will generally have the right to terminate a contract for a repudiatory breach namely if either:

• the defaulting party by words or conduct or silence informs the other party that he or she will not perform his or her contractual obligations
• the breach is of a condition of the contract, or
• the breach deprives the innocent party of substantially the whole benefit which it was intended to obtain from the contract.

When faced with any of the above repudiatory breaches, the non-defaulting party is entitled to exercise a right to terminate the contract and claim damages for the breach. The non-defaulting party is not obliged to exercise its right to terminate and may elect to affirm the contract (i.e., to treat it as ongoing) and claim damages for any breaches of the contract. A party will be found to have affirmed the contract if it has acted in a manner which evidences an intention to continue with its contractual obligations. Once a contract has been affirmed, with knowledge of the breach, the non-defaulting party is no longer entitled to terminate the contract for that specific breach, but it may be entitled to terminate at a subsequent date if the breach continues or the defaulting party commits another breach of the contract.

Why getting termination wrong is dangerous

Before terminating a contract, it is important for the terminating party to consider carefully the legal basis on which it is seeking to terminate the contract. There are serious consequences for terminating a contract on the mistaken belief that there is a right to do so. This could be construed as a repudiatory breach of the contract which would entitle the other party to accept the repudiation, terminate the contract and claim damages. If the non-defaulting party affirms the contract and loses its right to terminate, any belated attempt to terminate will be considered a repudiatory breach thereby entitling the other party to terminate the contract and claim damages.

Renegotiation and market volatility: an early indicator of dispute risk

In practice, many commercial parties do not move immediately to terminate contracts. Instead, the first sign of stress in long-term supply or infrastructure contracts is often an attempt by one party to renegotiate pricing, delivery obligations or risk allocation.

Periods of extreme market volatility – such as those triggered by geopolitical conflict, commodity price shocks or shipping disruptions – frequently lead parties to seek amendments to existing contracts. These may include:

• price adjustment mechanisms or temporary surcharges
• changes to delivery schedules or shipping routes
• temporary suspension of minimum volume commitments, or
• cost-sharing arrangements for logistics or insurance increases.

Requests for renegotiation can be an early indicator of potential dispute risk. Where commercial negotiations fail, parties may escalate disputes by alleging breach of contract, wrongful invocation of force majeure, or failure to perform despite changed circumstances.

Lessons from previous commodity shocks

This dynamic has been observed in previous commodity shocks, including during COVID and the Russia‑Ukraine war, where parties initially attempted to renegotiate supply arrangements before disputes ultimately proceeded to arbitration or litigation.  In the current Middle East context, the combination of rising energy prices, supply chain delays and geopolitical uncertainty increases the likelihood that disputes will arise across sectors such as energy, mining, chemicals, commodities trading, shipping, construction and infrastructure.

Parties should therefore:

• review force majeure and hardship clauses in existing contracts
• document the causal connection between events and performance issues
• carefully engage early with counterparties to explore commercial solutions, and
• consider dispute resolution strategies where negotiations begin to break down.

Conclusion

The market shortages and rising prices of commodities potentially give rise to defaults in performance. Businesses should move quickly to understand their contractual position, preserve rights and engage constructively with counterparties. Early legal and commercial intervention can materially reduce dispute risk and protect long‑term relationships in an increasingly uncertain environment.

It is important to:

• review any force majeure clause contained in the contract and take advice on its scope and operation under the governing law of the contract;
• take advice on whether the doctrine of frustration applies under the governing law of the contract and the consequences (e.g., automatic termination of the contract) if the doctrine applies. Consider whether it is desirable to invoke the doctrine of frustration given such consequences and if so, notify the other party at the address in the notice provision. Mitigate the effects of any frustrating event and potential losses sustained by the other party;
• review any hardship, termination or suspension provisions in the contract and take advice on whether there exists a ground for invoking those provisions. Ensure that any notice requirements are met and notices sent to the correct address when invoking such provisions;
• keep records of any non-performance or breach of the contract, including the timing of non-performance, mitigation efforts and losses sustained; and
• actively negotiate with the other party for possible waivers, time extensions and mutually beneficial alternatives to fulfil contractual obligations – a front-foot approach is often beneficial but precautionary steps should often be taken (such as steps being on a ‘without prejudice’ basis and ‘reserving rights’).