Strait of Hormuz disruption – Disputes risks for energy and infrastructure projects

Where disputes may emerge

a. Force majeure and contractual relief

Force majeure (FM) claims will likely arise from this disruption. Under most governing laws, whether a FM claim can be successfully made depends on contractual wording.

A central issue which may arise is whether the disruption is considered a foreseeable regional risk, or whether affected parties can point to the exceptional combination of security threats, official advisories and practical barriers to transit. The recent escalation – including targeted attacks on vessels and the near-cessation of commercial transits – may lead to arguments that disruption constitutes an exceptional event under the applicable FM formulation.

Where performance remains possible via alternative routes or through interaction with a sanctioned county, disputes will likely turn on whether the contract requires performance at any cost or only reasonable endeavours.

b. Delay and disruption

Delays are likely to feed notably through EPC and O&M contracts. Recent notices issued by EPC contractors in the region cite shipping delays, and, in some cases, constraints on personnel availability. The impact of the shipping disruption on the project and reasonable mitigation measures will likely be central issues.

c. Price and cost escalation

Freight rates on alternative routes have increased sharply since late March, with some operators reporting very substantial cost uplifts for rerouted cargoes. These figures may be used to support claims under price adjustment and hardship mechanisms. Potential additional future tolls levied by nearby countries (including sanctioned ones) may also add to the issue.

Where price movements are excluded from FM, parties are likely to explore hardship, change-in-law or exceptional-event provisions to recover increased costs.

d. Offtake, shipping and supply chain

“Take-or-pay” and “deliver-or-pay” provisions are likely to come under scrutiny. The widening security crisis – including blocked vessels and confirmed missile strikes on commercial tonnage – is compounding these risks and is likely to lead offtakers to contest or suspend performance.

A further emerging issue may be the interaction between contractual definitions of ‘route closure’ and the current reality - any potential misalignment might further create fertile ground for disputes.

e. Insurance, sanctions and finance pressures

War risk underwriters have issued updated guidance indicating that cover for transits through the Strait may be restricted or withdrawn, with some operators required to seek case by case approval.

These issues are often amplified in charter arrangements, project finance structures, where delays and cost increases, as well as the requirement to maintain adequate insurances, can trigger covenant breaches or defaults, requiring careful coordination across project and financing documents.

Arbitration as a protective tool

In this environment and given the inclusion of arbitration clauses in multiple international contracts, companies may increasingly consider turning to arbitration to protect their positions. At the same time, investors may reassess whether their cross border investments benefit from treaty protection, which can provide an additional avenue where state measures, state inaction or instability materially affect operations.

Emergency arbitration could also be used to seek interim relief.

What parties should do now

• Preserve evidence: maintain records of shipping conditions, advisories, delays, routing decisions and project impacts.
• Comply with contracts: ensure all notice requirements are met across the contractual suite.
• Document mitigation: record the rationale for key decisions, including diversions, resequencing and cost incurrence.
• Align positions: maintain consistency across EPC, supply, offtake, shipping and financing arrangements.

Bottom line

Commercial transit through the Strait of Hormuz has become severely constrained and the disruption has entered a sustained phase. For shipping, energy and infrastructure projects, this is no longer simply a logistics issue – it is a disputes issue, with risk cascading across contracts and counterparties.

Early, coordinated and well-documented action will be critical to protecting contractual entitlements and managing exposure as the situation evolves.

Authored by Melissa Ordonez, Bruno Cantier, Alexander Premont, Christine Le Bihan-Graf, and Emily Hack.