As the conflict in West Asia has nearly frozen all trade movement through the Strait of Hormuz, Indian law firms have seen a surge in queries from companies seeking clarity on whether they can invoke a rare clause to mitigate risk—force majeure.
It is a contractual provision that allows a party to suspend or avoid its obligations if an unforeseen event outside its control makes performance impossible. These may include war, government restrictions or major disruptions to shipping routes, if specifically covered in the contract.
“The energy sector is reaching out the most, especially companies importing LNG (liquefied natural gas) and crude who now face stranded cargoes and unreliable shipping schedules,” said Charanya Lakshmikumaran, executive partner at Laxmikumaran & Sridharan (LKS).
“The shipping and logistics sector is next, dealing with mounting delays, higher war-risk premiums and rerouted vessels,” she said. “Indian manufacturers, EPC (engineering, procurement and construction) contractors and large import-dependent businesses have also begun seeking advice due to rising supply-chain uncertainty.”
The queries mirror global panic as the Brent has spiked above $100 a barrel for the first time since 2022 after the US and Israel’s joint strikes on Iran evoked retaliatory missile and drone attacks by Tehran across the Persian Gulf region. That has almost disrupted ship movement through the Strait of Hormuz, a chokepoint between Iran and Oman that carries roughly one-fifth of the world’s oil consumption and large volumes of LNG. India relies on imports for more than 80% of its oil consumption; about 50% of its oil imports and 60% of its LNG pass through this route.
Clients are mainly seeking clarity on whether developments in West Asia fall within the scope of force majeure clauses in their contracts, particularly where agreements refer to events such as war, blockades or disruptions to shipping routes, according to Lakshmikumaran. Companies are also asking about procedural requirements such as the timing and format of notices and the documentation needed to support a force majeure claim.
Paridhi Adani, partner and head of the Ahmedabad office at Cyril Amarchand Mangaldas, said the firm’s clients with long-term crude offtake and LNG supply agreements are “deeply engaged’.
Queries spike
India’s top gas importer Petronet LNG Ltd issued a force majeure notice on 5 March under its gas sale and purchase agreement, citing constraints faced by certain LNG vessels during transit between India and Qatar. Its vessels were unable to reach the Ras Laffan loading port due to the war.
Russia’s invasion of Ukraine in 2022 has evoked similar discussions between companies and law firms. However, sanctions emerged as a major concern for trade at the time.
Sanctions arise from government restrictions that can make trade or payments with certain entities illegal, even if shipments remain possible.
In contrast, the current West Asia crisis has sparked legal queries focused more on logistical disruptions, particularly risks to cargo movement through the Strait of Hormuz.
This time, the volume of queries is significantly higher, given the more immediate impact on India’s energy supplies and pricing, lawyers say. India relies heavily on crude, LNG, and other commodity shipments from the Gulf, making disruptions in the region a greater risk.
Not an easy call
Yet, lawyers caution that force majeure claims in such geopolitical situations can be difficult to sustain.
“Legally, these claims are harder to sustain than instinct suggests, and the gap between the felt reality of disruption and the technical legal threshold is where most companies will find themselves stranded,” Adani of Cyril Amarchand Mangaldas said. “Rerouted vessels, volatile freight costs and uncertain delivery windows are real and damaging, but they are not, in legal terms, an impossibility. The foreseeability problem compounds this.”
Venkatesh Raman Prasad, partner at JSA Advocates & Solicitors, said if LNG can still be delivered through alternative routes or logistical arrangements, even if it becomes more expensive, companies may struggle to rely on the clause.
However, if a contract lacks a force majeure clause, companies may rely on Section 56 of the Indian Contract Act, which provides that a contract is discharged if an unforeseen event renders performance impossible. Courts, however, apply this rule strictly and do not allow it if the contract has only become more expensive or difficult to perform.
Beyond force majeure
Law firms say companies are also exploring measures beyond force majeure. These include a review of insurance policies for coverage, exclusion clauses and notification requirements, particularly as some insurers have withdrawn or restricted coverage for vessels transiting the Gulf, especially those transporting cargo through the Strait of Hormuz.
“Apart from force majeure invocation, we have seen parties examining the applicability of material adverse change (MAC) clauses and price adjustment provisions, exploring renegotiations under contracts, seeking extension of time, escalations, or even considering termination of contracts to address sanction-related risks,” said Sanjeev Kapoor, senior partner at Khaitan & Co.
Companies are also exploring insolvency options as sanctions and geopolitical risks begin to affect payment channels and contractual obligations, he said.
It’s not just shipping and fossil fuel companies exploring invoking force majeure as delayed shipments of raw materials and higher freight prices threaten project deadlines and costs.
According to a partner at a New Delhi-based law firm advising energy and infrastructure companies, who did not wish to be named, it has held informal discussions with renewable energy companies as they assess the potential impact of the West Asia crisis and whether such a clause can be invoked by them.