Matouk Bassiouny & Hennawy

Matouk Bassiouny & Hennawy

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The Geopolitical Conflict and Contractual Risk Allocation: Force Majeure and Hardship in the Context of the US–Iran Crisis

Geopolitical tensions in the Gulf are no longer just a political or military concern. They are actively reshaping contractual risk and have huge impact on contracts including construction and oil and gas contracts.

From disrupted supply chains to surging costs and delayed performance, businesses are increasingly asking the same question: does this excuse performance, or merely make it more expensive? And what are the legal consequences of either of these two impacts?

The answer lies in a critical legal distinction under Gulf laws, influenced by Egyptian law:

  • Force majeure applies where performance becomes impossible. In this case, the obligations in question would be extinguished, and the contract may be terminated.

  • Hardship applies where performance remains possible but excessively burdensome, threatening excessive losses and disturbing the contractual equilibrium. In this case, courts may rebalance the contract by changing the extent of obligations or by suspending them.

    • In both cases, the event in question must be exceptional, unpredictable and unavoidable. These terms were extensively defined under Gulf laws and courts jurisprudence.

    The difference between these two doctrines is not merely academic. It determines whether a party walks away without liability or remains bound (albeit on adjusted terms).

    To deal with the consequences of force majeure and hardship events, clients are advised to make sure of the following:

  • Review governing law and contract terms carefully. The availability and scope of relief depend heavily on both.

  • Do not assume economic disruption qualifies as force majeure. The threshold is significantly higher than commercial hardship.

  • Document causation and mitigation efforts: Parties must demonstrate that the event directly caused the disruption and that reasonable steps were taken to mitigate its impact.

  • Consider proactive renegotiation. In hardship scenarios, courts favor rebalancing rather than termination.

  • Draft with precision going forward. Clear force majeure clauses and risk allocation mechanisms are critical in volatile geopolitical environments

    • In our latest client alert, we break down how courts across the GCC are approaching these doctrines in light of current geopolitical developments, with practical guidance for navigating ongoing disruption.

    Read the full article here