When the pipeline breaks: Force majeure, frustration, and non-performance in energy and commodities contracts

The past four years have confronted contracting parties with two of the most severe geopolitical shocks of the modern era. Russia's invasion of Ukraine disrupted energy supply chains on an unprecedented scale, while Western sanctions on Russian companies, banks and assets fundamentally altered the legal and commercial landscape. 

More recently, military action involving the United States, Israel and Iran has strained shipping through the Strait of Hormuz, while strikes on Gulf energy infrastructure have disrupted production and exports. The consequences have travelled far beyond the immediate theatres of conflict: energy supplies have been interrupted, shipping routes constrained, and force majeure declarations have cascaded down supply chains. For commercial parties, legal mechanisms that might once have seemed remote have become critical.

The Legal Toolkit

When geopolitical disruption strikes, parties typically reach for one of two mechanisms: (i) force majeure – express contractual relief for events beyond a party's control; or (ii) frustration – the implied doctrine discharging a contract where performance has become radically different from what was agreed. Where neither is available, parties must decide whether to perform or to face the consequences of breach.

A further question arises where performance has become unlawful: sanctions, trade restrictions, and regulatory change introduce an illegality dimension that sits alongside – and sometimes overrides – a purely contractual analysis.

These mechanisms are not mutually exclusive, and the same circumstances may engage all of them simultaneously.

(i) Force majeure – Relief by contract

Under English law, force majeure is a creature of contract. Where there is no force majeure clause, there is no contractual relief for force majeure. For a clause to be triggered, the event must qualify under its terms, and performance will often need to be prevented by the event, not merely delayed, made more expensive or commercially unattractive. The qualifying event must also be the cause of the failure to perform, not simply a contributing factor.

In practice, notice and mitigation obligations are as important as the substantive requirements. They are commonly treated as conditions precedent to relief, and the English courts apply them strictly. A party that fails to give timely notice, or to demonstrate that it took all reasonable steps to mitigate, may forfeit its entitlement to rely on the clause entirely.

Recent months have shown how these technical considerations play out in practice when geopolitical disruption strikes, and how legal complexity accumulates when they do.

In the first days of the conflict in the Middle East, force majeure (FM) declarations emerged from the region's state-owned energy giants. QatarEnergy, responsible for roughly one-fifth of global LNG supply, declared force majeure days after the first strikes. As its declaration reached offtakers in Europe and Asia, they faced a question that is rarely straightforward: does an FM declaration received upstream entitle the recipient to pass it on downstream?

The answer depends on the drafting of each contract in the chain. Triggering events, causation requirements, notice periods, and the standard of prevention may differ from one tier to the next. Commercial contracts are often not fully "back-to-back," meaning FM protection under one agreement may not flow through to contracts downstream. An intermediary caught between an upstream declaration and a downstream contract that does not respond to the same events may find itself unable to perform without any means of contractual relief.

Declaring force majeure also carries reputational weight. Investors and counterparties outside the immediate conflict zone will monitor events closely, and prolonged declarations risk signalling underlying instability. The divergent responses of major energy companies, some declaring force majeure and others absorbing the cost and performing regardless, illustrate that the legal and commercial calculi do not always align.

(ii) Frustration – The implied doctrine of last resort

Where a contract contains no force majeure clause, a party may argue that the contract has been discharged by operation of law through frustration.

The threshold under English law is high. Performance must have become impossible, unlawful, or so radically different from what was contemplated that it would be unjust to hold the parties to the original bargain. Increased expense or commercial inconvenience will not suffice.

The relationship between the two doctrines is also significant. Where an express force majeure clause exists, English courts generally treat it as the parties' agreed allocation of risk in the face of supervening events, limiting the scope for a separate frustration argument where the clause already addresses the circumstances in question.

By contrast, civil law systems, including those of several Gulf Cooperation Council states, offer greater flexibility through doctrines permitting suspension, amendment, or renegotiation where circumstances have changed fundamentally, even short of impossibility. For parties with disputes governed by such systems, this distinction may mean the difference between full relief and no relief at all.

(iii) Consequences of non-performance – When neither mechanism applies

Where neither force majeure nor frustration is available, a party that fails to perform is in breach of contract and will be exposed to a claim for damages. In energy and commodities disputes, the central battleground is the measure of loss: typically, the differential between the contract price and the cost of replacement supply, together with any consequential losses flowing from the failure to deliver (assuming these have not been excluded by agreement).

The current environment has also focused attention on the dynamic of the efficient breach. In dislocated markets, such as the LNG and broader commodities sectors following conflict in both Ukraine and the Middle East, some parties make a deliberate calculation to default on their obligations on the understanding that the cost of doing so will be lower than the cost of performance. Whether that approach pays off depends on the damages analysis, including contractual caps, exclusion clauses, mitigation obligations, and the date at which loss is assessed.

The supply chain dimension adds further complexity. A party in breach at one level will typically face claims from below while pursuing claims against parties above it in the same disrupted chain. The result is likely to be parallel proceedings across multiple tiers of the same supply chain.

(iv) Unlawful performance – The sanctions and illegality dimension

A separate question arises where performance is not merely difficult, but unlawful. Sanctions, trade restrictions, and regulatory changes create an illegality dimension that operates alongside, and can override, the force majeure and frustration analyses.

Western sanctions on Russian energy companies rendered performance of many long-term contracts illegal, as financial institutions involved in those transactions themselves became subject to restrictions. A party may rely on a force majeure clause listing government action or regulatory change as a qualifying event, or invoke frustration by supervening illegality, but the applicable sanctions regime, availability of licences or exemptions, and contractual allocation of regulatory risk all require jurisdiction-specific analysis.

The procedural consequences have been no less significant. Sanctions regimes have directly affected arbitral proceedings, constraining payment of fees, the engagement of counsel, and parties' ability to participate. They have also influenced parties’ choice of arbitral seat, contributing to shifts in arbitration trends and prompting greater scrutiny of sanction regimes in established arbitration hubs.