The Crisis and Its Legal Significance

The closure of the Strait of Hormuz, through which approximately one-fifth of the world's oil and a significant share of its LNG transits, has triggered one of the most consequential supply chain disruptions in recent memory. As vessels are rerouted around the Cape of Good Hope, lead times lengthen dramatically, freight costs surge, and commodity prices are convulsing. For commercial lawyers and their clients, the pressing question is not merely operational: it is contractual. Who bears the risk? Who is excused from performance? And what remedies, if any, remain available?

This newsletter examines three legal doctrines at the heart of these questions: force majeure, frustration of contract, and hardship clauses, and considers their practical implications across the sectors most acutely affected.

The Three Legal Doctrines: A Primer

1. Force Majeure
Force majeure is a contractual mechanism that must be expressly provided for, and its application depends entirely on the language of the clause in question. A well-drafted clause will enumerate triggering events (acts of war, government action, natural disasters, blockades) and prescribe notice obligations, suspension rights, and ultimately termination triggers if the impediment persists.

The Hormuz closure may qualify as a force majeure event under many standard clauses, but this is not automatic. Courts and arbitral tribunals will scrutinise whether: (i) the event falls within the defined categories; (ii) it was unforeseeable and beyond the party's control; (iii) the party seeking relief has taken reasonable steps to mitigate; and (iv) the event actually caused as opposed to merely contributed to the failure of performance. Critically, if an alternative route exists (such as the Cape route), many clauses will require a party to use it, even at substantially greater cost, before invoking force majeure.

2. Frustration of Contract
Where no force majeure clause exists, or where the clause is silent on the relevant event, parties may resort to the common law doctrine of frustration. Under English law, frustration discharges both parties from further performance where a supervening event, not caused by either party and not contemplated at the time of contracting, makes performance radically different from what was agreed.

The threshold is high. Mere commercial inconvenience, additional expense, or delay is not sufficient. However, where a contract is truly predicated on passage through the Strait, for example, an FOB contract specifying a Hormuz-proximate loading port, there is a credible argument that the entire commercial basis of the contract has been destroyed. English courts will consider the length of the disruption, the proportion of the contract term affected, and whether circumvention is commercially feasible.

3. Hardship Clauses
Increasingly common in international commercial contracts, hardship clauses (sometimes drafted as 'material adverse change' or 'economic equilibrium' provisions) allow a party to request renegotiation when an unforeseen change in circumstances fundamentally alters the balance of obligations. Unlike force majeure, hardship does not automatically excuse performance; it obliges parties to negotiate in good faith. This makes hardship provisions particularly relevant in long-term contracts such as LNG sale and purchase agreements or construction EPC contracts where sustained disruption may render performance economically ruinous.

A key practical point is the three doctrines are not mutually exclusive. Where force majeure fails to provide relief, counsel should consider frustration and hardship in parallel, as well as reviewing whether price escalation clauses, change-in-law provisions, or material adverse change provisions offer additional avenues.

Sector-by-Sector Analysis

Buyers and Sellers of Physical Commodities
For commodity traders and physical goods buyers and sellers, the key battleground will be the interplay between Incoterms, force majeure clauses, and the identity of the party bearing freight risk. Under CIF and CFR contracts, the seller bears the risk of arranging carriage and may invoke force majeure if the nominated route is unavailable. Under FOB terms, the buyer takes on freight risk once cargo passes the ship's rail, potentially leaving them exposed to rerouting costs.

Buyers expecting timely delivery of raw materials face a difficult choice: invoke force majeure against their downstream contracts, negotiate an extension, or source alternative supply at spot prices that may be multiples of contract price. Sellers, meanwhile, must decide whether to offer Cape rerouting, seek price adjustment under hardship provisions, or face breach claims. Neither position is comfortable, and the outcome will depend heavily on precise contractual language.

Insurers and the Insurance Market
Marine insurers and war-risk underwriters are at the frontline of the Hormuz crisis. Vessels transiting or attempting to transit the region will face dramatically elevated war-risk premiums, and many hull and cargo policies will contain Institute War Clauses that already exclude losses arising from acts of hostile forces. Cargo owners should urgently review their open cover and voyage policies for geographical exclusions and ensure that extended routing via the Cape is covered.

P&I Clubs will face increased claims from shipowners seeking to recover for deviation, delay, and potential cargo loss claims brought by charterers and cargo interests. Liability insurers in the energy and commodities sectors should also brace for knock-on business interruption claims from end-buyers unable to receive contracted supply. The question of whether geopolitical closure constitutes a 'war' or 'political risk' event (with distinct policy implications) will generate significant litigation.

Charterparties and the Shipping Market
The implications for shipping contracts are wide-ranging. Standard voyage charterparties under BIMCO and other forms generally include a Conwartime clause or similar war-risk provision entitling the master and owners to refuse transit through dangerous zones and to reroute at the charterer's expense. In time charters, the analysis differs: the vessel is at the charterer's disposal, and deviation to avoid the Strait may trigger disputes over whether the charterer is entitled to off-hire the vessel during a Cape rerouting. Laytime and demurrage clauses will also come under strain. If a vessel is delayed at a Hormuz-region berth or diverted to a lengthy alternative passage, parties will dispute whether the delay is attributable to a force majeure event under the charterparty or counts against laytime. Owners should also review their safe port and safe berth warranties carefully, given that courts may well hold that any port accessible only via a hostile strait is no longer a 'safe port' for the purposes of the charterparty.

Construction Projects
Major construction projects, particularly those in the Middle East and Asia requiring imported materials, plant, or equipment routed through the Strait, face multiple legal pressure points. EPC and FIDIC-form contracts typically contain force majeure and exceptional event provisions, but the test of 'prevention of performance' is interpreted narrowly. A contractor who can still perform, albeit at greater cost and with later delivery, will find it difficult to invoke force majeure unless the contract makes specific provision for rerouting or supply chain disruption.

More promising for contractors may be variation and change-in-law provisions, as well as extension of time claims under FIDIC Sub-Clause 8.5 or equivalent. Clients and project finance lenders should review their lender step-in rights and delay liquidated damages provisions carefully, since prolonged supply disruption that spills into critical path delays could threaten drawdown conditions and covenant compliance. Proactive engagement between employers, contractors, and insurers is strongly advised before disputes crystallise.

The LNG Industry
LNG trade is perhaps the sector most existentially exposed to Hormuz disruption. Major Qatari and other Gulf-origin LNG volumes pass through the Strait on their way to European and Asian buyers. Long-term Sale and Purchase Agreements (SPAs), often running for 15 to 25 years, typically contain destination restrictions, take-or-pay obligations, and force majeure provisions that were drafted against a very different geopolitical backdrop.

Sellers facing inability to lift or deliver contracted volumes will consider invoking force majeure. Buyers who cannot receive delivery will face take-or-pay exposure unless they too can invoke a corresponding force majeure. The interplay of force majeure cascades through LNG chains, from upstream producers, through liquefaction facilities, to shipping, regasification, and end-user contracts, creating a web of potentially simultaneous claims. Portfolio players with diverse sourcing may be in a stronger position, while buyers with single-origin supply agreements face potentially catastrophic exposure.

Shipping and Maritime Industry: Broader Considerations
Beyond charterparties, the maritime industry faces systemic legal questions. Salvage and wreck removal liability, crew welfare obligations under the Maritime Labour Convention, towage and port entry disputes, and the legality of insurance declarations may all come into question. Flag state and port state control inspections may be disrupted, complicating compliance obligations. Shipowners and operators should ensure their Deviation Clauses, War Risk Clauses, and Blocking and Trapping endorsements are current and fit for purpose. Arbitration clauses, commonly London arbitration under LMAA terms or LCIA, will be activated at scale. The Hormuz disruption has the hallmarks of a market-defining event that will produce a generation of new arbitral awards clarifying the boundaries of force majeure and frustration in modern shipping practice.

Recommended Immediate Actions for Clients

• Conduct an immediate audit of all contracts with Hormuz-region exposure, focusing on force majeure, hardship, and alternative route provisions.

• Review war-risk and cargo insurance policies for geographical exclusions and obtain written confirmation of cover for Cape routing.

• Serve contractual notices promptly. Most force majeure clauses contain strict notice windows; delay may waive the right to invoke the clause.

• Engage counterparties in good faith renegotiation where hardship provisions apply, and document all communications carefully.

• Brief project teams on change-of-circumstances and extension of time procedures under their specific contract forms.

• Assess downstream contractual exposure. If upstream supply fails, ensure back-to-back protections exist or are sought urgently.

• Retain specialist external counsel as soon as practicable, ahead of anticipated arbitration and litigation filings, for guidance as to proper notifications or termination.

How TKI Singapore LLP | Tokyo International Law Office Can Help

Our Maritime, Insurance, Energy, and International Trade practice are advising clients across all sectors affected by supply chain disruptions. To arrange a consultation, please contact your usual partner or reach out to our crisis response team earl.dolera@tkilaw.com .

（Written by：Earl Rivera-Dolera）

※This newsletter is published for general informational purposes only and does not constitute legal advice. The legal analysis provided reflects English law principles unless otherwise stated. Clients should seek specific legal advice in respect of their individual circumstances. TKI Singapore LLP accepts no liability for reliance upon the contents of this newsletter without prior consultation.

Earl Rivera-Dolera is a dispute resolution lawyer specializing in international arbitration. Prior to joining the firm, she served as Partner and Head of International Arbitration at Frasers Law Company (formerly Freehills) in Vietnam, where she represented clients in arbitrations under major institutions including ICC, SIAC, JCAA, and HKIAC. She also regularly acts as arbitrator (chair, sole, and party-appointed).
She has extensive experience handling disputes across key jurisdictions such as Japan, Singapore, London, and Vietnam, covering sectors including energy, construction, and cross-border transactions. She has been involved in over 200 matters with total claims exceeding US$10 billion.
in various capacities as arbitrator, counsel-advocate, or tribunal secretary to prominent senior international arbitrators in Singapore, London, and New York.
She is admitted as a solicitor in England and Wales, and as an attorney in New York, Texas, and the Philippines. She is a Fellow of the Chartered Institute of Arbitrators and the Singapore Institute of Arbitrators.