Gulf Conflict: Energy and Commodities Supply Chain Disruptions, Force Majeure, and the Arbitration Disputes Ahead

In Brief 

• Armed conflict in the Gulf has triggered force majeure declarations by multiple state-owned energy producers and disrupted global LNG, crude oil, and fertilizer supply chains. 

• The validity of these declarations—and the scope of mitigation, notice, and “pass-through” obligations—will be contested across commercial and investor-state arbitral forums. 

• Contracts governed by English law, New York law, or the CISG each present distinct frameworks for evaluating force majeure claims; contracts lacking a force majeure clause could face a higher threshold for excusing non-performance. 

• Downstream disruptions to fertilizer production and pricing are severe, with implications for agribusiness, commodity trading, and food security. 

• Government emergency measures—including Jones Act waivers, tariff suspensions, and supply redirections—may themselves generate contractual and regulatory disputes. 

• Parties on all sides of affected contracts should be reviewing their force majeure, hardship, termination, insurance, and dispute resolution provisions now. 

In addition to significant loss of life and humanitarian harm, the escalating armed conflict in the Gulf region has triggered a wave of force majeure declarations by major state-owned energy and commodities producers, disrupted global LNG, crude oil, and fertilizer supply chains, and set the stage for a significant volume of commercial and investor-state arbitration disputes. This alert maps the landscape of potential claims and offers practical guidance for affected parties across the energy and commodities sectors. 

The Disruption: What Has Happened 

Since late February 2026, Iran’s strikes on energy infrastructure across the Gulf—combined with restrictions on passage through the Strait of Hormuz—have caused unprecedented disruption to global energy and fertilizer markets. Key gas production facilities in the Gulf were repeatedly targeted, prompting a major state-owned LNG producer to halt production and declare force majeure on long-term contracts with buyers in Asia and Europe for a period of up to five years.^{1, 2} Strikes in mid-March alone reportedly wiped out a significant share of Qatar’s LNG capacity and caused over $20 billion in damage, including to facilities operated under joint ventures with major international oil companies.³ 

The declarations have cascaded across the region. Multiple national oil companies across the Gulf have declared force majeure on affected operations, and at least one has declared force majeure on foreign-operated oilfields.^{4, 5, 6} Other state-owned producers have reduced supplies and redirected buyers to alternative loading terminals outside the Gulf.⁷ 

The disruption extends well beyond hydrocarbons. Roughly one-third of global seaborne fertilizer trade transits the Strait of Hormuz.⁸ A major Gulf-based urea producer shut down its plant, which has an annual capacity of 5.6 million tons. The downstream effects have been severe: India lost approximately 800,000 tons per month of urea output because it sources 80% of its ammonia from the Gulf, while other countries in the region halted fertilizer production entirely.⁹ Global urea prices surged 35% to three-year highs, and Fitch raised its 2026 ammonia and urea price expectations by roughly 25%.¹⁰ In the United States, farmers entering planting season face significant urea shortfalls, with prices rising considerably.¹¹ 

Force Majeure: Key Legal Considerations 

The validity of these force majeure declarations will be a central contested issue in the disputes that follow. Many international LNG sale and purchase agreements are governed by English law, under which force majeure is a creature of contract rather than a general doctrine. New York law—another common choice in international energy and commodities transactions—takes a broadly similar approach, treating force majeure as a contractual rather than an implied right. Where contracts are governed by or incorporate the UN Convention on Contracts for the International Sale of Goods (CISG), Article 79 provides a separate statutory framework for excusing non-performance due to impediments beyond a party’s control, which may apply even in the absence of an express force majeure clause.  

While the precise requirements vary depending on the governing law and the terms of each agreement, generally there are four key considerations in evaluating a force majeure claim: (1) whether the event falls within the contract’s definition of force majeure (2) whether the event prevented, hindered, or delayed performance; (3) whether the event was beyond the affected party’s reasonable control; and (4) whether the affected party took reasonable steps to mitigate the event’s effects. 

Several fault lines are already emerging. First, the distinction between “prevented” and “hindered” performance could be crucial. While the Strait of Hormuz has become dangerous to transit, a question that could arise is whether it has been formally closed in a legal sense. Questions may also arise as to whether economic hardship or increased cost, standing alone, is sufficient to support a force majeure claim, or whether actual impossibility of performance is required.  

Additionally, mitigation obligations are likely to receive close attention. Parties and tribunals may examine whether affected sellers explored alternative shipping routes (such as pipeline alternatives or Red Sea terminals), alternative supply sources, or other commercially reasonable measures, and how far such obligations extend before they impose a materially different commercial risk. Contractual notice requirements—including timing, form, and content—may also prove significant, as non-compliance could become a basis for challenging an otherwise legitimate force majeure claim. 

A critical issue for parties in the middle of the supply chain is the “pass-through” problem. Questions may arise as to whether receiving a force majeure notice from an upstream supplier is, by itself, sufficient to entitle a party to invoke force majeure against its own downstream buyers, or whether each party must independently demonstrate that the contractual requirements are met with respect to its own obligations. This is particularly relevant for LNG aggregators and fertilizer traders who purchase from Gulf producers and resell globally. 

Where contracts do not allow suspension of payments under force majeure—as is reportedly the case with certain LNG terminal agreements in South Asia¹²—the position is more precarious. The governing law to those contracts may leave affected parties to consider alternative doctrines such as frustration—a doctrine that could set a considerably higher threshold. Under civil law systems or contracts incorporating the CISG, hardship doctrines may provide alternative avenues for relief. 

The Arbitration Disputes Horizon 

The current crisis is expected to generate disputes across multiple arbitral fora. 

Commercial Arbitration Under LNG and Commodity SPAs. Most long-term LNG sale and purchase agreements contain arbitration clauses, typically designating ICC, LCIA, or SIAC rules. Disputes are likely to arise over the validity of force majeure declarations, the adequacy of mitigation efforts, the treatment of undelivered volumes and make-up provisions, price review mechanisms, and pro rata allocation when sellers can only partially perform. With Brent crude prices having nearly doubled to over $119 per barrel,¹³ market conditions may create incentives for parties to reassess their contractual positions, and questions may arise as to whether force majeure declarations are being invoked in circumstances where supply could, in fact, be redirected or maintained through alternative means. Take-or-pay and ship-or-pay obligations present additional complexity, as questions may arise regarding whether a force majeure event suspends or merely defers these commitments.  Unilateral actions to suspend payments could trigger arbitration proceedings. 

Investor-State Arbitration. Several developments raise the specter of claims under bilateral investment treaties. Declarations of force majeure on foreign-operated oilfields⁶ could raise questions about the contractual rights of international oil companies, including whether such measures may give rise to claims under applicable bilateral investment treaties. Potential unilateral action by importing states against foreign-invested LNG terminal operators may raise similar considerations. Emergency measures adopted by importing states in South Asia^{14, 15} and elsewhere—including price controls, supply requisitioning, and rationing—may also raise questions about potential exposure to claims, particularly where such measures affect foreign-invested operations. Due to potential realignments, certain concessions and projects may be expropriated and either re-procured or nationalized. Such actions will need to be evaluated under applicable bilateral investment treaties and, where relevant, the Energy Charter Treaty, to which a number of states in the region are parties. Key treaty provisions-including fair and equitable treatment, full protection and security, and protections against unlawful expropriation-may be implicated depending on the nature and scope of the measures adopted. 

Downstream and Secondary Disputes. The crisis is generating second-order disputes across a wide range of sectors. In the fertilizer space, the cascading production shutdowns across South Asia, the Middle East, and North Africa create contractual performance gaps between fertilizer producers and their agricultural or industrial buyers. Energy-intensive industries may consider whether surging input costs provide a basis for invoking force majeure or related contractual protections, though the distinction between impossibility and mere economic hardship is likely to be a significant point of contention. Insurance disputes—over war-risk coverage, business interruption, and political risk policies—are also expected, particularly given reports of significant premium increases and the withdrawal of coverage by some underwriters. 

Regulatory Responses and Cross-Practice Implications 

Governments worldwide have responded with emergency measures that create their own legal complexities. The U.S. Administration issued a Jones Act waiver to permit foreign-flag vessels to transport fertilizer between U.S. ports and lifted barriers to fertilizer imports from certain jurisdictions previously subject to trade restrictions.¹⁶ The EU and member States are considering temporarily suspending duties on certain fertilizer imports.¹⁷ Other importing states have redirected domestic gas supplies to fertilizer production. These regulatory interventions may themselves complicate existing contractual obligations, or raise trade law and sanctions compliance questions—particularly where companies are sourcing from new suppliers in jurisdictions with elevated compliance risk, including potential FCPA and sanctions exposure. 

Practical Guidance 

For Buyers and Importers. Consider reserving rights in writing upon receiving a force majeure notice. It may be prudent to request documentation of the force majeure event, the causal link to non-performance, and the mitigation steps undertaken. Notices may warrant review for procedural compliance, including timing and specificity requirements. Parties may also wish to monitor market activity by counterparties claiming force majeure. Contemporaneous records—including communications, market data, and alternative sourcing efforts—should be preserved. 

For Sellers and Producers. Careful attention to contractual notice requirements—including timing, form, and content—may be advisable. Contemporaneous documentation of the causal chain from the force majeure event to the specific inability to perform, as well as mitigation efforts, may prove important in any subsequent dispute. Where force majeure reduces but does not eliminate supply, questions regarding pro rata allocation obligations may arise. Parties may also wish to consider how any spot market activity could be perceived in the context of a force majeure declaration. 

For Governments and State-Owned Enterprises. Before taking unilateral action to modify or suspend contractual obligations, carefully assess exposure to commercial arbitration claims (under LCIA, ICC, or other institutional rules) and investor-state claims (under applicable BITs or multilateral treaties). Considerations such as non-discrimination, proportionality, and due process may be relevant in assessing potential treaty-based exposure. 

For All Parties. Review force majeure, hardship, termination, and price review clauses in all affected contracts. Audit insurance coverage, including war-risk, business interruption, and political risk policies. Calendar critical deadlines, including termination rights that may be triggered after 90–180 days of persistent force majeure. Assess governing law and dispute resolution provisions to understand where and how potential claims would be adjudicated. Insurance may serve as a critical avenue for loss recovery; parties should evaluate both commercial insurance and political risk insurance options, including coverage available through private insurers or the Multilateral Investment Guarantee Agency (MIGA). 

Endnotes 

¹ QatarEnergy, Press Release: Temporary Suspension of LNG Production (Mar. 2026), available at https://www.qatarenergy.qa/en/MediaCenter/Pages/newsdetails.aspx?ItemId=3893.  

² QatarEnergy, Press Release: Force Majeure Declaration on Certain LNG Contracts (Mar. 2026), available at https://www.qatarenergy.qa/en/MediaCenter/Pages/newsdetails.aspx?ItemId=3894.  

³ QatarEnergy, Press Release: Statement on Impact of March 18–19, 2026 Strikes (Mar. 2026), available at https://www.qatarenergy.qa/en/MediaCenter/Pages/newsdetails.aspx?ItemId=3897.  

⁴ Bapco Energies, Press Release: Bapco Energies Declares Force Majeure on the Group’s Operations (Mar. 2026), available at https://www.bapcoenergies.com/media-centre/press-releases/bapco-energies-declares-force-majeure-situation-on-the-groups-operations.  

⁵ “Kuwait Cuts Oil Production as Precaution Amid Iran Tensions, KPC Says,” Reuters (Mar. 7, 2026), available at https://www.reuters.com/business/energy/kuwait-cuts-oil-production-precaution-amid-iran-tensions-kpc-says-2026-03-07/.  

⁶ “Iraq Declares Force Majeure on Foreign-Operated Oilfields over Hormuz Disruption,” Reuters (Mar. 20, 2026), available at https://www.reuters.com/business/energy/iraq-declares-force-majeure-foreign-operated-oilfields-over-hormuz-disruption-2026-03-20/.  

⁷ “Saudi Aramco Tells Buyers to Lift Only Arab Light Crude at Yanbu for April,” Reuters (Mar. 23, 2026), available at https://www.reuters.com/business/energy/saudi-aramco-tells-buyers-lift-only-arab-light-crude-yanbu-april-2026-03-23/.  

⁸ See Carnegie Endowment for International Peace, “The Other Global Crisis Stemming From the Strait of Hormuz’s Blockage” (Mar. 12, 2026), available at https://carnegieendowment.org/emissary/2026/03/fertilizer-iran-hormuz-food-crisis; see also CRU Group, “Middle East Conflict: Urea Supply Disruptions Could Be Catastrophic” (Mar. 10, 2026), available at https://www.crugroup.com/en/communities/thought-leadership/2026/Middle-East-Conflict-Urea-supply-disruptions-could-be-catastrophic/.  

⁹ See, e.g., “Strait of Hormuz Crisis Threatens World Fertilizer Supply Chain,” Anadolu Agency (Mar. 2026), available at https://www.aa.com.tr/en/world/strait-of-hormuz-crisis-threatens-world-fertilizer-supply-chain/3875786.  

¹⁰ Fitch Ratings, “Fitch Ratings Raises Most Short-Term Fertiliser Price Assumptions” (Mar. 13, 2026), available at https://www.fitchratings.com/research/corporate-finance/fitch-ratings-raises-most-short-term-fertiliser-price-assumptions-13-03-2026; see also “Strait of Hormuz Crisis Threatens World Fertilizer Supply Chain,” Anadolu Agency (Mar. 2026), available at https://www.aa.com.tr/en/world/strait-of-hormuz-crisis-threatens-world-fertilizer-supply-chain/3875786.  

¹¹ See American Farm Bureau Federation, Letter to President Trump on Fertilizer Supply Shortages (Mar. 9, 2026), available at https://www.fb.org/files/AFBF-Letter-to-POTUS-Fertilizer.pdf.  

¹² “Review of Flawed RLNG Terminal Contracts Begins,” The News International (Mar. 2026), available at https://www.thenews.pk/print/1406148-review-of-flawed-rlng-terminal-contracts-begins.  

¹³ See, e.g., “Oil Soars Past $100 a Barrel, Stocks Plunge as US-Israel War on Iran Rages,” Al Jazeera (Mar. 9, 2026), available at https://www.aljazeera.com/economy/2026/3/9/oil-soars-past-100-a-barrel-amid-iran-war; “Oil on Track for Record Monthly Surge as Iran War Disrupts Markets,” The Guardian (Mar. 29, 2026), available at https://www.theguardian.com/business/2026/mar/29/oil-monthly-surge-record-iran-war-markets-gold.  

¹⁴ “India Adopts Emergency Measures Amid Gulf Energy Crisis,” BBC News (Mar. 2026), available at https://www.bbc.com/news/articles/cy4w92408ywo.  

¹⁵ “Sri Lanka Declares Energy Emergency as Gulf Supplies Disrupted,” BBC News (Mar. 2026), available at https://www.bbc.com/news/articles/c4g5n58rlnzo.  

¹⁶ See AFBF, “Farmers Applaud Action to Increase Fertilizer Supplies” (Mar. 18, 2026), available at https://www.fb.org/news-release/farmers-applaud-action-to-increase-fertilizer-supplies (confirming Jones Act waiver for fuel and fertilizer imports). 

¹⁷ See, e.g., “France Seeks EU Fertilizer Carbon Tax Pause as War Raises Prices,” Associated Press (Mar. 26, 2026), available at https://www.firstalert4.com/2026/03/27/conflict-iran-sparks-global-fertilizer-shortage-threatens-food-prices/.