Impacted by the Iran-Related Hostilities? What Stakeholders Can Realistically ClaimDate Prepared:31 May 2026

The geopolitical conflict between the USA/Israel and Iran has, to varying degrees, impacted the construction sector across the Gulf region, primarily in the form of delays, supply chain disruption, price escalations and, in some cases, contract terminations. These are all contentious issues that have a time and/or cost impact. In this article, we briefly highlight the relief that may be available to stakeholders — particularly those in the UAE — from both a contractual and legal perspective.

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Transcript

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The geopolitical conflict between the USA/slash Israel and Iran has, to varying degrees, impacted the construction sector across the Gulf region, primarily in the form of delays, supply chain disruption, price escalations, and, in some cases, contract terminations. These are all contentious issues that have a time and slash or cost impact. In this article, we briefly highlight the relief that may be available to stakeholders, particularly those in the UAE, from both a contractual and legal perspective. Contractual perspective. While the contractual perspective needs to be considered on a case-by-case basis in light of the actual wording agreed between parties, force majeure provisions tend to be the most applicable in the context of the geopolitical conflict. Instances of war, hostilities, whether war be declared or not, invasion, or acts of foreign enemies frequently fall under the definition of force majeure. They are also beyond the parties' control and could not have reasonably been avoided or overcome, which are two common contractual conditions to be satisfied in order for a valid force majeure claim to be brought. However, a perennial challenge encountered in respect of successfully invoking force major protection is that such relief is often premised on the basis that the event of force majure has prevented the affected party from performing its obligations, thus rendering performance impossible. Prevention and impossibility are difficult evidential hurdles to overcome and are only likely to be satisfied in extreme circumstances, especially as the affected party is under an obligation, including by law and often under contract, to mitigate the impact of the force majeure event and to find workaround solutions. For example, although the Strait of Hormuz may be largely closed, alternative, albeit more expensive and slower, transportation routes may exist, thus potentially vitiating an otherwise credible force majeure claim. In real terms, therefore, the circumstances in which performance may be rendered impossible may be restricted to such things as the actual destruction of the project, for example, if it is stuck by a missile, or if an order is issued by a competent authority for the works to be halted, such as are on account of safety concerns, although this scenario would also interface with change in law provisions in the contract. Conversely, it would be far easier for the affected party to avail itself of force major relief if the drafting of the force majeure clause is more forgiving, and, for example, provides that force majeure relief can be claimed if the event in question has hindered, as opposed to prevented, performance and slash, or that the affected party is only required to take reasonable steps to overcome the force majeure event rather than being under an absolute obligation to do so. If relief is available, then the affected party will, as is the case with any other claim, be required to demonstrate cause and effect by establishing how the force majeure event in question rendered performance impossible, or, depending on the drafting, hindered performance, thereby excusing the affected party from the performance of its affected obligations for the duration of the force majeure event. Force majeure relief usually takes the form of an extension of time, but some contracts make provision for monetary compensation to be available, usually if the force majeure event in question concerns a political event, that is war and hostilities, rather than a natural event, that is an earthquake, hurricane, etc. Additionally, force majeure regimes are often subject to specific carve-outs, which may include payment obligations. This means that the affected party will still be required to discharge its payment obligations, notwithstanding the occurrence of a force majeure event. This can be a significant risk for the employer, particularly as insurance in respect of force majeure-related losses is difficult to come by and expensive. Any contractual notification requirements related to force majeure events need to be strictly adhered to. This is particularly important if the drafting states that the affected party will forfeit its right to claim relief if it fails to notify of the occurrence of a force majeure event within the specified time period. If relief for force majeure has not been triggered because the event in question does not fall under the definition of force majeure, although such definitions are seldom exhaustive, or because performance has not been rendered impossible, then the availability of alternative forms of contractual redress needs to be considered. In this regard, some contracts contain cost escalation clauses that allow the contract price to increase in specified circumstances. This is relevant, as conflicts invariably cause price increases. However, these clauses are atypical given the prevalence of lump sum slash fixed pricing and may otherwise be of limited application, that is, they may only apply to certain materials, as opposed to being of general application. Change in law relief may also be potentially relevant, although it would be incumbent on the affected party to establish how the implementation of the law that has been introduced, or changed, has impacted on its performance. Supply chain disruption claims are difficult to maintain, as contracts invariably provide that the main contractor is fully responsible for the performance of its subcontractors and suppliers. In other words, relief for supply chain disruption is only likely to be forthcoming if the main contractor can establish a self-standing right to claim under the main contract, that is, if the force majeure clause under the main contract applies to an event that has impacted a supplier. Additionally, any geographical restrictions regarding the force majeure clause need to be assessed. For example, the drafting may state that force majeure relief only applies to events occurring in a specific jurisdiction, usually the location of the project. This would prevent relief if a supplier is impacted by a force majeure event occurring in another jurisdiction, which is a very real possibility, as supply chains often interface with a wide variety of countries. Legal perspective, redress at law is also a factor if the contract has failed to adequately address force majeure on account of mandatory provisions. For the purposes of this article, we have referred to UAE law. As has been widely publicized, the UAE revised its civil code with effect from 1 June 2026, pursuant to Federal Decree Law No. 25 of 2025, the new Civil Code. Contracts executed from 1 June 2026 will be subject to the new Civil Code, while contracts executed prior to 1 June 2026 will remain subject to Federal Law No. 5 of 1985, the Old Civil Code. Article 273 of the Old Civil Code addresses force majeure and provides that the event of force majeure must render performance genuinely impossible, not merely more burdensome, costly or inconvenient, and, in this situation, the contract will be rescinded. This position largely corresponds with Article 236 of the new Civil Code, which addresses force majeure and, as with typical contractual force majeure provision, the requirement to establish impossibility is inherently challenging. Given the difficulty in establishing impossibility, Article 249 of the Old Civil Code becomes relevant. This mandatory provision provides that courts and tribunals have the residual discretionary power to reduce and rebalance contractual obligations if public exceptional unpredictable circumstances arise that have resulted in the performance of a contractual obligation as being not impossible, but rather burdensome to the debtor in such a manner as to threaten him with heavy loss. In theory, Article 249 appears to be a silver bullet. However, precedent shows that it tends to be narrowly construed in practice, including on the basis that heavy loss is usually applied in the context of the obligure's overall business, rather than being measured under the particular contract in question. Article 224 of the new Civil Code is broadly similar to Article 249 of the Old Civil Code and constitutes a mandatory provision. It expressly allows the court or tribunal, having balanced the interests of the parties, to order a cission of the contract. Conclusion. There was a time when force majeure provisions were regarded as mere boilerplate clauses that were seldom reviewed in detail, let alone negotiated. Since the COVID-19 pandemic, however, force majeure clauses have been considered in greater detail. The current geopolitical conflict is likely to result in these provisions being further scrutinized to ensure that adequate protection can be claimed, particularly given the relatively narrow relief available under the law. Parties negotiating contracts would be well advised to insert specific provisions to address the geopolitical conflict, particularly to clearly allocate risk in respect of certain pressure points and sensitivities that may be exposed.