In brief
Armed escalation across the Middle East has disrupted airspace and critical maritime corridors, notably the Strait of Hormuz and Red Sea/Suez, forcing costly rerouting of vessels and increasing war risk insurance and freight rates. Construction supply chains in the Gulf are already experiencing delivery delays, price volatility and repricing of non‑energy cargo, with knock‑on effects for Asia Pacific contractors dependent on these corridors. Over the last four weeks, we have addressed multiple queries arising from the conflict.
Baker McKenzie's Global Disputes Forecast 2026 reported geopolitics, sanctions and supply chain disruption as top external drivers of disputes, alongside rising exposure to cross border investigations and constrained disputes budgets. The contractual disciplines refined in COVID‑era force majeure guidance remain all-the-more important in today's conflict related claims.
Recommended actions
- Audit contracts for force majeure, hardship, change-in‑law/sanctions, suspension/termination, price adjustment and dispute resolution mechanics, for example arbitral seat, institution and emergency arbitration.
- Preserve data and evidence by capturing voyage data, carrier/insurer notices, routing changes/decisions, insurance surcharges and critical path impacts to support delay/disruption claims and defend liquidated damages exposure.
- Strengthen sanctions compliance and payment mechanisms, for example, licensing, escrow and sanctions proof structures to avoid illegality risks as listings and export controls evolve.
- Reassess schedules and logistics, pre‑approve alternative routing, update risk allowances for diversions and war risk premiums, and renegotiate pricing where contractually available.
- Plan for emergency relief and enforcement, line up emergency arbitrator pathways, security for costs/guarantees, and early enforceability strategies where counterparties/assets intersect with sanctions. Choose neutral, sanctions-agnostic seats.
- Deploy cross-functional crisis management to coordinate legal, operational, HR and communications responses, people management, travel/mobility and stakeholder messaging.
- Run supply chain vulnerability assessments to map critical inputs, chokepoints, high risk suppliers/customers and diligence alternative sources before disruption crystallizes into disputes.
- Execute strategic continuity and opportunity planning across markets with multijurisdictional analysis of risk and upside, leveraging on the ground intelligence to adjust capital and project pipelines.
In more detail
The escalating conflict in the Middle East has moved rapidly, with sustained disruption to business operations translating into operational friction for businesses moving goods and supplies across the region. The most immediate commercial shock is logistical with maritime carriers suspending or curtailing Gulf services, forcing the industry to abandon and divert certain transit channels. These diversions have caused longer transit times that, in turn, drive up fuel and war risk insurance costs. Construction supply chains are seeing delivery delays and freight repricing, even for non-energy cargo.
Contractors in Asia Pacific are uniquely exposed. Asia's dependency on Middle Eastern energy means disruptions pass through to power and transport costs, which in turn inflate material inputs such as steel, cement and fabricated components. Simultaneously, many Asia Pacific projects import engineered parts or facade/MEP systems through the same corridors now constrained, raising procurement risk and liquidated damages exposure when installation sequencing slips. Several governments in Asia Pacific have intervened to implement various strategies to address these constraints and energy flows.
Baker McKenzie's Global Disputes Forecast 2026 underscores how deeply geopolitics now shapes corporate disputes exposure. 79% of surveyed leaders identify tariffs, sanctions and export controls as primary external drivers of disputes; 78% highlight operational and supply‑chain disruption; and 82% fear cross‑border or multi‑agency investigations. Notably, 38% say their 2026 disputes budgets are insufficient for the risk they face. These findings align with the current geopolitical disruptions, including volatile shipping windows, redirected energy cargoes and state-led market interventions, signaling more claims, more investigations and tighter resourcing to manage them.
COVID-era lessons can and do apply in today's context. In many jurisdictions, force majeure is contractual, not doctrinal, and outcomes depend on clause wording and strict proof of causation, timely notice and mitigation. Those principles map directly to today's conditions, substituting war, blockade, airspace closures or cyberattacks for pandemic restrictions. Parties must show the supervening event prevents or hinders performance despite reasonable mitigation (for example, attempted rerouting, rather than simply made it more expensive).
Where potential disputes will arise
- Disputes over whether there has been a force majeure event or hardship. With widespread diversions and claims for insurance, the key question that will arise is whether alternative performance, even where costlier routings were necessary, was reasonably available, and whether contemporaneous steps were to taken to minimize delays. Documentary trails, such as carrier advisories, AIS tracks, premium notices, will be decisive.
- Sanctions and export controls will complicate performance and payments, particularly as Asia's governments adjust policies to address the impact on energy flows. As Baker McKenzie's Global Disputes Forecast 2026 highlights, geopolitics is a dominant risk, meaning parties must ensure that continuing to perform would not breach evolving sanctions, and that payment channels remain lawful and operable.
- Price escalation and currency volatility are already stressing fixed price frameworks. Gulf market evidence shows rapid freight repricing and schedule fragmentation, increasing the potential for hardship claims, renegotiations and variations.
- Delay, disruption and liquidated damages will snowball. The cost of rerouting and extended transit windows makes critical path analysis and notice discipline decisive in defending liquidated damages exposure or securing an extension of time.
What legal and project teams should do now
- Start with a contract audit focused on force majeure, hardship, change-in-law/sanctions, suspension/termination, price‑adjustment and dispute‑resolution clauses for any contracts that may be impacted. For cross‑border portfolios, Baker McKenzie's comparative Force Majeure Tracker is a practical starting point for multi‑jurisdictional scoping.
- Build a claims file in real time that includes vessel AIS tracks, carrier/insurer notices, rerouting decisions, premium increases and schedule analyses tied to the critical path.
- Strengthen sanctions triage and payment mechanics, including licensing or escrow where necessary. Maintain rolling assessments of counterparties, cargoes and routes, and draft termination for illegality fallbacks where state measures impede performance.
- Prepare emergency relief strategies, such as emergency arbitrator applications, security for costs and protective orders, anchored in neutral, sanctions-agnostic seats. Consider enforcement early, with security/guarantee structures that remain bankable under sanctions pressure.
- Implement crisis management plans that operate cross-functionally across legal, operations, HR and communications, manage people moves and contractor workforce safety.
- Conduct supply chain vulnerability assessments by mapping critical inputs and chokepoints, identify high risk suppliers/customers, ascertain alternate sources and pre-negotiate options.
* * * * *
If you require any assistance at all, please do get in touch with us.