Associé
Analysis & trends
The US-Iran conflict and the FIDIC contracts
The ongoing conflict involving Iran and the United States is causing significant disruption across the Gulf region and increasingly affecting international construction and infrastructure projects. While the full extent of the consequences remains uncertain, the impacts on global supply chains, logistics networks and procurement arrangements are already becoming apparent.
The Strait of Hormuz lies at the centre of these concerns. Maritime transit through the Strait, through which approximately one-fifth of the world’s oil supply passes each day together with substantial volumes of LNG and petrochemical feedstocks, has been severely disrupted, with vessel transits having practically ceased in recent weeks. International assessments published by the International Energy Agency (IEA), UNCTAD and the International Maritime Organization (IMO) indicate that the conflict has materially affected energy trade flows, merchant shipping and regional transport routes.[1]
In the context of construction projects, these developments are already giving rise to substantial operational and contractual difficulties. Contractors and project owners are facing disrupted supply chains, reduced cargo and shipment availability, restricted shipping routes, and the closure of ports or border crossings. These constraints may prevent the import of materials, delay the delivery of plant and specialised equipment, including turbines, transformers and high-voltage electrical components, and, in some cases, require the demobilisation or evacuation of workforce due to security concerns.
The consequences are not limited to delay. Disruption to maritime transit and global procurement chains is also increasing transportation and fuel costs, creating shortages in material availability, and driving price escalation for key construction inputs.
Although the initial effects observed in March 2026 primarily concerned temporary supply chain interruptions and modest increases in oil and gas prices, the impacts have since intensified considerably. Material shortages, freight disruption and price escalation are now emerging as critical risks affecting project delivery and completion timelines throughout the region and beyond.
Against this background, important questions arise as to how these events may be treated under international construction contracts – for example, contracts concluded on the basis of the FIDIC standard forms. The contract may or may not contain provisions for adjustments to be made to the Contract Price for rises or falls in the cost of labour, goods and other inputs (Sub-Clause 13.7 [Adjustments for Changes in Costs]). However, depending on the circumstances, contractors may also seek relief under the provisions relating to Exceptional Events (formerly Force Majeure).
Each contract contains its own allocation of risk and contractual framework, particularly where the FIDIC forms have been amended by the Parties. Employers and Contractors will therefore need to review the terms of their specific agreements carefully in order to assess the relief potentially available in the context of the current conflict.
Adjustments for Changes in Costs (sub-clause 13.7)
Sub-Clause 13.7 is intended to address fluctuations in the cost of labour, Goods and other inputs required for the execution of the Works during the course of the project.
However, this mechanism is optional and will only apply where the Contract includes the relevant price adjustment provisions, together with the applicable Schedule(s) of Cost Indexation and adjustment formulae.
The FIDIC Guidance for the Preparation of Particular Conditions notes that Sub-Clause 13.7 may be appropriate where it would be unreasonable for the Contractor to bear the risk of escalating costs caused by inflation. Although such mechanisms are commonly associated with long-term projects, they may also be incorporated into shorter-duration contracts where the parties consider that market volatility justifies protection against significant cost fluctuations.
For these provisions to apply, the parties are required to prepare a schedule of cost indexation included in the Contract and that such schedule include a formula for calculation of the applicable adjustment under this sub-clause.
In the present context, Sub-Clause 13.7 may be particularly relevant given the significant increases in material prices, freight costs, fuel costs and other supply-chain-related expenses resulting from the Iran-US conflict and the disruption affecting the Strait of Hormuz. Nevertheless, entitlement to relief will depend entirely on whether the Contract actually incorporates a price adjustment mechanism and on the scope of the indices and formulae agreed by the parties.
Where such provisions apply, Contractors facing significant escalation should maintain detailed records of baseline prices at tender stage, monitor subsequent increases using reliable market data and cost indices, and carefully quantify the financial impact of the escalation on the performance of the Works.
Exceptional Events (Clause 18)
The concept of Force Majeure used in the 1999 FIDIC models[2] has been replaced in the FIDIC 2017 models[3] by “Exceptional Events” (Clause 18 [Exceptional Events]). The conditions to be satisfied remain substantially the same.
The event or circumstance must be one which “(i) is beyond a Party’s control; (ii) the Party could not reasonably have provided against before entering into the Contract; (iii) having arisen, such Party could not reasonably have avoided or overcome, and (iv) is not substantially attributable to the other Party”.
It should be noted that sub-paragraph (ii) does not require the event to be “unforeseeable”, a criterion which is required for force majeure under many civil code systems of law. But it does have to be an event which the party could not reasonably have provided against, for example by adding a contingency into the contract price or time schedule, or by taking out insurance. Sub-paragraph (iii) will require a party to take reasonable precautions. Sub-Clause 18.1 then identifies a number of events which may fall within the concept of an Exceptional Event where these conditions are met. These include, “(a) war, hostilities (whether war is declared or not), …”.
In the present circumstances, it would not seem difficult to argue that the US-Iran conflict would be war or hostilities satisfying the requirements of Sub-Clause 18.1(a).
For contracts signed before the outbreak of the hostilities, there would presumably be little doubt that the war would satisfy the conditions of Sub-Clause 18.1(i) to (iv). On the other hand, for contracts signed afterwards, the situation might be different and there might be some debate as to whether, for example, the seller or transporter of goods should have provided for the possibility of disruption to trade routes as a result of the ongoing conflict. Parties may consider making express provision for this in their contracts, one way or the other.
Prevention and Notice (Sub-Clause 18.2)
Under Sub-Clause 18.2 [Notice of an Exceptional Event], if a Party “is or will be prevented from performing any obligations … then the affected Party shall give a Notice … Thereafter, the affected Party shall be excused performance of the prevented obligations…”.
Several points follow from this wording.
The Party must actually be prevented from performing at least some of its obligations. It is not enough that performance might simply have become more difficult or expensive. However, it is not necessary that the event has made performance of the entire contract impossible. If the event has affected only part of the Contractor’s obligations, it may be excused performance of those obligations, even though performance may continue in all other respects.
This distinction is particularly important in the present circumstances. Where the war causes the closure of a shipping lane and thus actually prevents the import of specific materials, equipment or plant required for the Works, the Contractor may indeed argue that it has been prevented from performing its obligation to deliver the relevant equipment to site. However, this argument may not always be straightforward.
Where alternative shipping routes are available, but are slower, the Contractor will not be excused of its obligations altogether, but will (subject to giving notice, see below) be entitled to an extension of time under and (in the case of delay caused by war) additional payment (Sub-Clause 18.4 [Consequences of an Exceptional Event]).
The timing of the Contractor’s Notice will be decisive. Under Sub-Clause 18.2, the affected Party must give Notice within 14 days of the date on which it “became aware, or should have become aware” of the Exceptional Event. This means that the time limit may start running before the Contractor has fully appreciated the practical consequences of the event, particularly if it has not closely monitored its own performance or that of its subcontractors and suppliers.
Where Notice is served within that 14-day period, relief may run from the date on which the Exceptional Event first prevented performance. If Notice is served late, the Contractor may still obtain relief, but only from the date on which the Notice was actually given.
In addition, contractors and employers alike will remember that Sub-Clause 20.2 [Claims for Payment and/or EOT] imposes a separate and strict claims notice requirement. If the Contractor fails to give the required Notice within 28 days from the date when it became aware or should have become aware of the event or circumstance[4], it may lose its entitlement to an extension of time or additional payment altogether.
These clauses have been considered by courts and Tribunals in the past and Parties can expect them to be enforceable. They can lead to harsh results.
Duty to Minimise Delay (Sub-Clause 18.3)
A party relying on Force Majeure or an Exceptional Event will generally be expected to take reasonable steps to reduce the effects of the event and, where possible, to overcome the impediment to performance. This obligation does not arise only at the outset of the event; it continues for as long as the relevant disruption affects performance.
In the context of the US-Iran conflict, mitigation may require the Contractor to consider practical alternatives, such as rerouting shipments, identifying substitute suppliers or equipment, adapting logistics arrangements, resequencing the Works, or implementing temporary operational solutions where feasible.
In a dispute, the burden of proof will be on the Party affected (most likely the Contractor). It is crucial that the Contractor gather contemporaneous evidence of (i) the event; (ii) the date it first had knowledge of the event; (iii) the way in which it has affected performance; (iv) the efforts the Contractor has made to work around the difficulties, find alternative transporters/suppliers etc.
Where the Contractor cannot demonstrate adequate mitigation efforts, its claim for relief may be denied or reduced.
Consequences (Sub-Clause 18.4)
Right to Extension of Time (EOT)
If the Contractor suffers delay as a result of the US-Iran conflict and is able to establish the necessary causal link, it may be entitled under Sub-Clause 18.4 [Consequences of an Exceptional Event] to an extension of the Time for Completion.
The Contractor will need to demonstrate that the conflict, or the specific consequences relied upon, such as the closure of shipping routes, port restrictions, delayed delivery of materials or equipment, or workforce demobilisation, actually delayed the critical path of the project.
Contemporaneous evidence will therefore be essential. Contractors should maintain detailed records of disrupted shipments, supplier communications, revised delivery dates, security instructions, mitigation efforts and updated programmes showing how the relevant disruption affected the project schedule.
Right to Cost
Under Sub-Clause 18.4 [Consequences of an Exceptional Event], the Contractor may also be entitled to recover Cost where it is prevented from performing by one of the man-made events identified in Sub-Clause 18.1(a), namely “war, hostilities (whether war be declared or not), invasion, act of foreign enemies”. Importantly, these events are not limited to occurrences within the Country where the Site is located and may arise anywhere in the world.
In practice, establishing entitlement is likely to present significant evidential challenges. The Contractor will need to demonstrate a clear causal link between the conflict and the additional Cost claimed. It will not be sufficient merely to show that prices generally increased during the relevant period or that market conditions became more volatile.
Termination (Sub-Clause 18.5)
Termination is unlikely to be the natural commercial response for either party in the context of the US-Iran conflict. However, FIDIC does provide for that possibility in certain circumstances.
Where performance is prevented by an Exceptional Event for a prolonged period, Sub-Clause 18.5 [Optional Termination] allows either party to terminate the Contract on 7 days’ notice if the prevention continues for 84 consecutive days.
If the Contract is terminated on this basis, the Employer would generally be required to pay the Contractor for the work already performed and for Costs incurred, but not for loss of profit.
Conclusion
The US-Iran conflict is already having a significant impact on construction projects, particularly through disruption to supply chains, shipping routes and procurement activities, as well as increased material and freight costs.
The current situation highlights the importance of carefully reviewing the contractual mechanisms available under FIDIC contracts and the particular conditions agreed by the parties.
In any dispute arising from the conflict, the burden of proof will rest on the affected party, most likely the Contractor. It will therefore be essential for Contractors to maintain detailed contemporaneous records.