The armed conflict that erupted in late February 2026, following coordinated U.S.–Israeli strikes on Iran and Iran's retaliatory attacks across multiple Gulf states, has created a commercial crisis of extraordinary proportions. The near-total closure of the Strait of Hormuz, the destruction of energy infrastructure in Qatar, the UAE, and Saudi Arabia, and the suspension of aviation across the region have disrupted supply chains, frozen maritime trade, and sent commodity prices spiraling upward.

For companies with commercial exposure to the Gulf, however, the most consequential risks may not be the immediate operational disruptions. They may be the contractual disputes that follow. Force majeure declarations are already cascading through global energy supply chains. Insurance markets have been thrown into turmoil. Delivery obligations are going unmet. The question is no longer whether disputes will arise — it is how they will be resolved, and under what legal framework.

Companies with exposure to the Gulf region should approach Iran conflict arbitration risk primarily as a matter of contractual risk management rather than a purely geopolitical concern. Conducting an early legal review of force majeure clauses, governing law provisions, and the chosen arbitral seat may help reduce potential exposure if disputes arise.

The Commercial Landscape

The scale of disruption flowing from this conflict is difficult to overstate. Following Iran's declaration that the Strait of Hormuz was effectively closed to shipping on 4 March 2026, tanker traffic through the strait dropped by approximately 70% almost immediately, and soon fell to near zero. With roughly 20% of global daily oil supply and a significant share of the world's liquefied natural gas (LNG) transiting this corridor, the downstream effects have been severe. Brent crude surged past $100 per barrel for the first time since the pandemic era, and European natural gas prices have risen by more than 60% since late February.

QatarEnergy was among the first major producers to declare force majeure, halting LNG production after Iranian drone attacks struck facilities. Kuwait Petroleum Corporation and Bahrain's Bapco Energies followed within days. Container lines have suspended Gulf and Red Sea routes, and major shipping firms have resumed Cape of Good Hope diversions, adding weeks to transit times. War risk insurance premiums have increased by a factor of four to six, and in some cases, insurers have canceled cover entirely.

For companies embedded in these supply chains — whether as sellers, buyers, shippers, insurers, or contractors — the consequences are not merely economic. They are contractual. Performance obligations that were routine just weeks ago have become impossible or prohibitively expensive to fulfill.

Force Majeure

Force majeure has become the legal concept of the hour, but its application is far less straightforward than many assume. While most international commercial contracts enumerate "war" or "hostilities" as qualifying events, the mere existence of armed conflict does not automatically trigger protection. The invoking party must demonstrate a direct causal link between the conflict and its inability to perform, not merely that performance has become more expensive or commercially unattractive.

This distinction is critical. A common pitfall in force majeure notices is relying on an event expressly listed in the clause — such as "war" — without establishing that the event actually prevents performance. In many current situations, the real impediment is not the hostilities themselves but a consequential government or regulatory measure: an airspace closure, a port shutdown, a sanctions restriction. Identifying the precise factual and legal cause of non-performance is essential.

The governing law of the contract will also determine the threshold for relief. Under Saudi law, for example, there is no blanket rule that war automatically qualifies as force majeure. Saudi courts assess each case individually, considering the nature of the event, its foreseeability, its causal impact on performance, and the contractual framework. Notably, given the long history of geopolitical tensions in the Persian Gulf, counterparties may argue that conflict-related disruptions were reasonably foreseeable—an argument that could defeat or weaken force majeure claims.

Under the Qatar Civil Code, impossibility of performance caused by an extraneous event beyond the parties' control may extinguish the obligation entirely. But impossibility and mere difficulty are not the same thing, and Qatari courts draw a sharp line between the two.

Beyond force majeure, practitioners should also consider alternative contractual mechanisms that may provide relief, including material adverse change (MAC) clauses, hardship provisions, and in civil law jurisdictions, the doctrine of imprévision. These mechanisms may offer a lower threshold for relief or different remedies — such as price adjustment rather than complete excuse — and should not be overlooked.

Governing Law

The choice of governing law in a contract is often treated as a formality during negotiations. In the current environment, it may determine the outcome of a dispute. The legal treatment of force majeure, hardship, and frustration varies significantly across the jurisdictions most commonly encountered in Gulf-related contracts.

English law, for instance, takes a restrictive approach to force majeure, treating it as a purely contractual concept with no default statutory provision. If the clause is not precisely drafted, the party seeking relief may find itself without a remedy. The English doctrine of frustration sets an exceptionally high bar — the supervening event must render performance radically different from what was contemplated, not merely more burdensome.

Civil law systems in the Gulf, by contrast, tend to provide statutory frameworks for both force majeure and hardship. The UAE's Civil Transactions Law, Saudi Arabia's Civil Transactions Law, and Qatar's Civil Code each contain relevant provisions, but their requirements differ. Companies need to understand which regime applies to their contract and what specific thresholds must be met.

Where contracts are governed by the law of a GCC state, practitioners should also be alert to the distinction between onshore and offshore legal frameworks within the UAE. A contract governed by DIFC law or ADGM law will be subject to a common law framework that differs materially from the civil law regime applicable onshore.

The Arbitral Seat

The choice of arbitral seat — the juridical home of an arbitration — determines the procedural law governing the proceedings, the supervisory court with authority to review or set aside awards, and the practical enforceability of any resulting award. In times of conflict, it also raises questions about whether hearings can take place in person, whether tribunal members can travel safely, and whether local courts remain operational.

Several Gulf arbitration centres have risen to international prominence in recent years. The Dubai International Arbitration Centre (DIAC) and Abu Dhabi's Arbitrate AD (which replaced the ADCCAC in 2024) are both well-regarded institutions. ICC statistics for 2025 placed the UAE among the top five global arbitral seats for the first time. However, the current conflict introduces new considerations.

Contracts seated in the DIFC default to the DIFC Arbitration Law and DIFC Courts as supervisory jurisdiction — a common law framework based on international standards. Contracts seated in the ADGM are similarly governed by the ADGM Arbitration Regulations 2015 and supervised by ADGM Courts. However, a contract that specifies only "Dubai" or "Abu Dhabi" without further precision may generate uncertainty about whether the seat is onshore (civil law) or offshore (common law). Recent UAE case law has highlighted exactly this ambiguity, and in one notable decision, the Abu Dhabi Court of Cassation determined the seat based on the location of an ICC representative office rather than the parties' apparent intent.

Companies should also consider enforcement risk. Arbitral awards are enforceable across 172 contracting states under the New York Convention. Court judgments from GCC states, by contrast, can be significantly more difficult to enforce outside the region. Where a counterparty's assets are located in multiple jurisdictions, the choice of arbitration — and the precision with which the seat is specified — can have direct financial consequences.

Insurance

A further dimension that companies frequently underestimate is the alignment — or misalignment — between contractual risk allocation and available insurance coverage. Most property, business interruption, marine, aviation, and liability policies in the Gulf region contain broad war and hostilities exclusions, often triggered without a formal declaration of war.

Where a contract places delay, suspension, or termination risk on a party, the absence of corresponding insurance protection may result in uninsured exposure. Companies should review policy terms urgently, assess whether specialist war risk or political risk coverage is available, and ensure that insurance strategy, contractual response, and dispute planning are coordinated across legal, commercial, treasury, and risk teams.

Practical Steps for In-House Counsel and Decision Makers

For in-house counsel and commercial decision-makers, the practical implication is clear. Contracts that once appeared routine may now determine how the financial consequences of geopolitical instability are allocated between the parties. Addressing these contractual issues at an early stage may prove decisive if disputes arising from the current conflict ultimately reach arbitral tribunals.

The following actions should be treated as priorities:

1. Audit your contract portfolio. Identify all contracts with Gulf-connected counterparties, delivery points, shipping routes, or commodity price exposures. Map force majeure clauses, governing law provisions, arbitral seats, and notification requirements.

2. Review force majeure language with precision. Do not assume that a reference to "war" will automatically provide relief. Assess whether the actual impediment to performance — which may be a government order, an airspace closure, or an insurance withdrawal rather than the hostilities themselves — falls within the clause.

3. Check notification requirements and time limits. Many force majeure clauses impose strict procedural requirements. Failure to notify within the prescribed period can forfeit the right to relief entirely, regardless of the substantive merits.

4. Preserve evidence. Maintain contemporaneous records demonstrating the causal link between the disrupting event and the inability to perform, mitigation efforts undertaken, and the financial impact.

5. Examine alternative relief mechanisms. MAC clauses, hardship provisions, price adjustment mechanisms, and statutory remedies may offer viable routes to relief that do not require the high threshold of impossibility.

6. Clarify the arbitral seat. If your arbitration clause refers ambiguously to "Dubai," "Abu Dhabi," or "the UAE," consider whether the intended seat is onshore or offshore, and whether amendment or clarification is warranted before a dispute crystallizes.

7. Coordinate insurance and legal strategy. Ensure that your insurance position is aligned with your contractual risk allocation. Engage specialist brokers to assess whether war risk, political risk, or trade disruption coverage is available or needs enhancement.

Looking Ahead

The current conflict is already generating the conditions for a significant wave of international arbitration. As force majeure declarations cascade outward from the Gulf, parties far from the immediate conflict zone will face claims — some legitimate, some potentially pretextual — arising from disrupted supply chains, unmet delivery obligations, and dramatically altered contract economics.

The companies and institutions that navigate this environment most effectively will be those that treat the crisis as a contractual risk management exercise from the outset. Early, rigorous review of contract terms; careful analysis of the applicable legal framework; and coordinated planning across legal, commercial, and insurance functions will distinguish those who manage their exposure from those who are caught unprepared.

About Al Armouti

Al Armouti is an international trade and law firm specializing in trade defense, anti-dumping proceedings, and cross-border commercial disputes. With a network spanning the GCC and the European Union, we assist manufacturers, exporters, and governments in navigating complex regulatory and dispute resolution environments.

For inquiries relating to Gulf conflict arbitration risk, contract review, or force majeure analysis:

info@armouti.com →

This publication is intended for general informational purposes only and does not constitute legal advice. Readers should seek professional counsel regarding their specific circumstances.