In the context of Iran‑linked hostilities and the force majeure declarations by Iraq and Qatar on oil‑supply contracts to the EU, contractors increasingly face a crucial question: is the disruption force majeure or hardship? The answer has a direct impact on whether you can stop performance, claim an extension of time, or simply request a price adjustment.
The difference under Saudi law
Under Saudi law, force majeure and hardship are distinct legal concepts:
- Force majeure (Article 110 CTL) provides that “if the performance of an obligation in a bilateral contract becomes impossible for a reason beyond the debtor’s control, said obligation and the corresponding obligation shall be extinguished, and the contract shall be automatically terminated”.
- Hardship (Article 97 CTL) instead states that “In case of extraordinary events which were unforeseeable at the time of contracting and which make the fulfilment of a contractual obligation excessively onerous […] the debtor may, without undue delay, invite the other party to negotiate”.
Force majeure covers extraordinary events beyond a party’s control (such as war, natural disasters, government prohibitions) that prevent performance. The consequences are typically suspension of the obligations affected, and, if the event continues for an agreed period, termination of the contract with no liability from the affected party.
Hardship applies, instead where performance is still technically possible but has become excessively onerous because of an unforeseen event (for example, a major disruption of supply or extreme cost increase). Excessively onerous does not that the performance has become simply more expensive. Hardship triggers renegotiation; if renegotiation fails, a court or tribunal may adapt or terminate the contract.
The ICC Force Majeure and Hardship Standard Clause is the starting point for this logic:
- The force majeure situation excuses performance when an extraordinary event genuinely prevents or hinders it.
- The hardship situation allows the affected party to request renegotiation and, if that fails, to refer the matter to a court or arbitrator for possible adjustment (e.g., price revision, payment‑term changes).
Example: Iraq and Qatar oil‑supply contracts
Recent reports indicate that Iraq and Qatar have declared force majeure on certain oil‑supply contracts with EU buyers. However, if the events in question only increase risk or cost (e.g., higher insurance premiums, longer routes, or temporary delays), rather than genuinely prevent loading or shipment, EU‑law parties may argue that the situation is more hardship than force majeure.
From a Saudi‑law‑linked perspective, the same reasoning applies to contracts:
- If sanctions, port closures, or security‑related restrictions make it impossible to import critical materials or equipment within a reasonable timeframe, the contractor may rely on force majeure under Article 110 CTL and any ICC Clause.
- If the contractor can still import the materials via alternative routes or suppliers, but at much higher cost, the situation is more likely to be treated as hardship under Article 97 CTL.
Practical example: a project facing Iran‑linked cost spikes
Consider a large infrastructure project in Saudi Arabia that depends on imported steel and specialised equipment. If:
- Iran‑linked sanctions drive up shipping costs by 50–100%;
- Insurance or fuel costs for transport routes spike;
- But the contractor can still obtain materials via alternative ports or routes,
this is a classic hardship scenario, not force majeure. Under Article 97 CTL, the contractor may:
- Formally request renegotiation with the employer, proposing a price adjustment or revised payment schedule.
- If renegotiation fails, refer the matter to a court or arbitrator, which may adjust the contract to restore a reasonable balance.
By contrast, if the contractor cannot obtain the materials at all because of sanctions or port closures, and no alternative exists within a reasonable timeframe, the contractor may argue force majeure, seek excuse from performance, and potentially termination if the situation persists.
Practical steps for contractors
- Assess the event: Is it impossibility (force majeure) or onerosity (hardship)?
- For force majeure: issue a written notice promptly, clearly explaining why performance is impossible and what mitigation has been attempted.
- For hardship: send a formal renegotiation request, supported by data on cost increases and any alternative‑route analysis, while continuing to perform as far as possible.
In the current Iran‑linked environment, understanding this distinction can help contractors avoid wrongly stopping work (which can trigger termination‑for‑default) and instead use the right legal tool—force majeure or hardship—to preserve their entitlements and maintain project continuity.
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