Fuel Disruption: Can Rising Fuel Prices Constitute Force Majeure In Canadian Infrastructure Contracts?

This is the second article in a series exploring the current energy shock and its implications for infrastructure projects. For additional context, we invite you to read “Fuel shortages and price uncertainty: What past oil shocks can teach us about infrastructure contracts today?”, which provides a historical perspective on previous energy shocks and their impact on infrastructure projects.
 

Considering that some major oil and gas producers such as Kuwait, Iraq, Bahrain and Qatar have over the past few months declared a force majeure event,¹ this article addresses the following question from a Canadian legal perspective: Could fuel shortages or fuel price increases allow stakeholders in major infrastructure projects to invoke force majeure clauses?

For context, the Executive Director of the International Energy Agency (IEA), Fatih Birol, indicated on April 23, 2026, that the current energy crisis arising from the closure of the Strait of Hormuz is “the greatest threat to global energy security in history.”²

In June 2026, the IEA stated that global energy markets were facing “the largest supply disruption in history” as a result of the near closure of the Strait of Hormuz, and reported that cumulative oil supply losses from Middle Eastern producers had exceeded 1.3 billion barrels. The IEA also noted that flows through the Strait had fallen from approximately 20 million barrels per day before the conflict to an average of 2.7 million barrels per day in March, April and May 2026³ (IEA, June 22, 2026).

Against the background described in our first article, including the IEA’s characterization of the current disruption and the global policy response, this article focuses on the Canadian force majeure analysis. In April 2026, it was reported that more than 60 countries had already introduced some type of mitigation measure or restriction to limit the impact of the energy shock,⁴ such as tax reductions, tax credits, fuel rationing, and restrictions on the export of certain products.

In infrastructure contracts, fuel disruptions become legally relevant when they affect a party’s ability to perform a contractual obligation, for example, by limiting access to essential inputs, delaying procurement, disrupting transportation, or triggering negotiated risk-allocation mechanisms. This was further discussed in our previous article. However, Canadian law does not treat every shock in the fuel market as a force majeure event relieving the parties from their contractual obligations. In fact, Canadian case law turns to the contract, the nature of the supervening event, the distinction between genuine non-availability and mere economic hardship and, with respect to Québec, the Civil Code’s rules on force majeure.⁵

This is why force majeure analysis in Canadian infrastructure contracts is usually less dramatic than commercial rhetoric suggests. A sudden disruption in energy markets may create intense cost pressure, real delay, and acute commercial stress, but the law still asks a narrower question: Based on the wording of this contract and the evidence available, did the event excuse non-performance?⁶

Key takeaways

• Fuel price increases alone will rarely constitute force majeure.

Under Canadian law, increased costs or commercial hardship will not usually excuse contractual performance without genuine impossibility or an express contractual provision.

• The contract will usually determine the outcome.

  Courts will first look to the wording of the force majeure clause and the parties' allocation of risk before considering doctrines such as frustration.

• Parties should look beyond force majeure.

  Before relying on force majeure, consider whether alternative contractual mechanisms or mitigation provisions provide a more appropriate solution.

1. Force majeure in common law provinces: A matter of contract

In the common law provinces, force majeure is a creature of a contract, not a free-standing doctrine of general application. The analysis therefore begins, and usually ends, with the words the parties negotiated and ultimately chose for themselves. Courts will assess whether the supervening event falls within the clause, and whether the clause, if properly construed, suspends performance, extends time, excuses non-performance, or grants some narrower form of relief. Where the contract already provides for the consequences of the force majeure event, the common law doctrine of frustration retreats into the background, as will be further detailed hereinafter.⁷

For example, Ontario’s Frustrated Contracts Act expressly preserves contractual provisions intended to operate in circumstances that would otherwise frustrate the contract, and Alberta’s Frustrated Contracts Act likewise applies where a contract has become impossible or frustrated and the contract does not already provide for the consequences.⁸

The Supreme Court of Canada’s leading force majeure decision remains Atlantic Paper.⁹ In this decision, the Court construed the clause as being triggered by a supervening event, beyond the parties’ control, that rendered performance impossible and interpreted “non-availability of markets” by reference to both the text of the clause and its contractual context. The Court rejected an attempt to rely on that language to escape a bargain that had become commercially unattractive, and it refused to treat force majeure as a broad licence to withdraw from performance merely because the economics had turned unfavourable. That remains the critical warning for fuel-related disputes: a severe increase in cost is not, without more, the same thing as true impossibility.

That approach is particularly important for infrastructure work. Canadian construction and project agreements are typically detailed and comprehensive, allocating price risk, delay risk, change risk, and schedule risk through a dense framework of general conditions, supplementary conditions, and project-specific mechanisms.

A. Price escalation is not the same thing as impossibility

The most important practical distinction for energy shock-related disputes is the distinction between a contract that has become more expensive and a contract that has become impossible, or at least genuinely incapable of performance, within the meaning of the force majeure clause.¹⁰ Atlantic Paper is instructive precisely because the Supreme Court of Canada would not equate a commercially unattractive market with true contractual impossibility.¹¹ The fact that performance has become uneconomic, difficult, or painful does not, without more, convert an ordinary market risk into force majeure.¹²

This point is especially important in fuel disputes. A significant increase in the price of diesel, gasoline, bunker fuel, or other project-critical inputs may profoundly affect margins, cash flow, and bid assumptions. Yet if fuel remains available through reasonable means and the contract can still be performed, the event will often look more like commercial hardship than force majeure. Atcor leaves room for relief only where the clause allows for, and circumstances show, a real and substantial problem rendering performance commercially unfeasible.¹³

The Alberta Court of Appeal in Atcor emphasized that force majeure disputes turn on the wording of the clause and on whether, in the relevant commercial circumstances, the party acted reasonably in response to the alleged disruptive event.¹⁴ That makes Atcor particularly useful in energy-related disputes, where commercial unworkability, allocation of scarce supply, and mitigation are often central to the analysis.¹⁵

B. If the contract is silent: Frustration is a narrow fallback

Where a contract contains no force majeure clause, the common law doctrine of frustration may apply.¹⁶ The doctrine has a narrow application. In Naylor, the Supreme Court repeated the test: frustration occurs when the parties made no provision for the supervening event and performance has become “a thing radically different from that which was undertaken by the contract.”¹⁷ Where parties have made specific provision for supervening circumstances, the doctrine of frustration is inapplicable. British Columbia’s Frustrated Contract Act makes that relationship explicit.¹⁸ Section 2 provides that the statute applies only to the extent that, on the true construction of the contract, it contains no provision for the consequences of frustration or avoidance.¹⁹ The statute therefore reinforces, rather than displaces, the primacy of contractual risk allocation.

Ontario and Alberta illustrate the same principle in slightly different ways. In Ontario, the statutory frustration regime expressly yields where the contract itself contains a provision meant to govern the supervening event.²⁰ In practice, that reinforces the primacy of the drafted clause. In Alberta, the same contractual orientation appears both in the statute and in the case law.²¹ Indeed, Alberta’s Frustrated Contracts Act applies to contracts that have become impossible to perform or otherwise frustrated, but it also requires the court to give effect to contractual provisions intended to operate in those circumstances and to apply the Act only to the extent consistent with those provisions.²²

For fuel disputes, the significance is straightforward: if the parties have already negotiated provisions with respect to force majeure, delays, escalation, changes, or a fuel-adjustment mechanism, a frustration argument will not be sustainable.²³ The law does not readily supplement a bargain the parties have already made merely because the bargain later becomes inconvenient or expensive.

Québec: Force majeure under the Civil Code

Article 1470 of the Civil Code of Québec provides that force majeure is an unforeseeable and irresistible event, and encompasses any external cause sharing those same characteristics. Article 1693 of the Civil Code of Québec adds that a party is released where the obligation can no longer be performed by reason of force majeure, unless the debtor has expressly assumed the risk.²⁴ This Article further specifies that the burden of proof of force majeure lies with the party invoking it.²⁵ In Développements récents en droit municipal, the authors explain that an irresistible event implies an absolute impossibility of performance, and that an increase in the price of a good or service due to an external cause does not constitute force majeure because it remains possible to acquire the good or service in question, but at a higher price.²⁶ This is the same conclusion that the Supreme Court of Canada reached in the Atlantic Paper decision.

In practical terms, that means that, under Québec law, a party invoking force majeure due to an energy shock must prove more than market turbulence or price volatility.²⁷ It must show an event that is both unforeseeable and irresistible, and must also show that the obligation can no longer be performed by reason of that event.²⁸ A sharp price increase, without genuine impossibility or irresistible constraint, will often be a difficult fit for Article 1693 of the Civil Code of Québec.²⁹

In Développements récents en droit municipal, the authors further note that fuel price increases are a normal phenomenon, as those prices depend on international markets, and are therefore unlikely to satisfy the criterion of unforeseeability required by jurisprudence.³⁰ That principle was applied in Transport Rosemont nc., where the Superior Court of Québec held that an unforeseeable increase in fuel prices did not constitute a case of force majeure.³¹ Moreover, in Services Ricova inc., the Superior Court concluded that performing a contract at a loss for a few months due to increased costs does not constitute force majeure.³²

With respect to broader economic crises, Québec’s civil law recognizes that an economic crisis is generally not considered force majeure because it is often foreseeable, allowing parties to take anticipatory measures to avoid or mitigate its effects. However, depending on the particularities of the market and the contractual relationship, a crisis of unexpected magnitude whose consequences far exceed what a reasonable, prudent, and diligent person could have foreseen at the time of contracting may, in certain cases, constitute relevant evidence of force majeure.³³

Québec law also remains attentive to the risk allocation the parties chose.³⁴ Article 1693 expressly withholds relief where the debtor has assumed the risk of force majeure. Churchill Falls confirms, in a broader contractual setting, that Québec law will not ordinarily use changing economic circumstances to rewrite a bargain that sophisticated parties deliberately structured over the long term.³⁵ In Churchill Falls, the Supreme Court refused to imply a duty to renegotiate a long-term electricity contract simply because the economic balance of the commercial transaction had shifted dramatically over time.³⁶ The decision is a powerful reminder that Canadian courts, whether in common law or civil law settings, do not lightly revise contracts merely because supervening events make one side of the bargain appear improvident.³⁷

Accordingly, although vocabulary from the common law analysis differs from the civil law approach in Québec, it reflects a similar practical discipline.³⁸ The main questions remain the same: what happened, was the event truly irresistible, did it actually prevent performance, and did the contract already allocate or provide for that risk?

When an energy shock could support a force majeure claim

The foregoing analysis does not mean that fuel-related force majeure claims are impossible. They are simply narrower than parties may assume.³⁹ An energy shock may amount to a force majeure event where it causes an actual interruption in energy supply, for example, when it is caused by embargoes, governmental orders, supply interruptions, or similar events, and the evidence shows that the particular fuel could not be procured despite reasonable efforts.⁴⁰ The closer the circumstances resemble true legal or physical shortages, the more plausible the force majeure argument becomes.

Another scenario could arise if Canadian distributors or importers were to invoke force majeure, as Qatar and Kuwait have already done. If domestic suppliers are then unable to fulfil their own delivery obligations, actual physical shortages may materialize downstream, strengthening the case for the application of force majeure clauses in infrastructure contracts. Conversely, a party who can still obtain fuel, but only at a much higher price or on much less favourable commercial terms, will generally have more difficulty making a successful force majeure argument.⁴¹ In that situation, the court is likely to ask whether the contract already allocated that sort of commodity risk, whether the force majeure clause was drafted broadly enough to include this risk, and whether the event truly prevented performance or merely made it less profitable.⁴²

This is also why evidence matters so much. Fuel disputes are rarely resolved in the abstract.⁴³ They turn on specific proof: the wording of the clause, the chronology of the disruption, the availability of alternate suppliers, the efforts made to source substitute supply, the degree to which the event actually stopped or prevented performance of the work, and the extent to which the contract already provides for price-adjustment, escalation, or change mechanisms that address the same commercial risk.⁴⁴

Conclusion

The Canadian law of force majeure is both more limited and more useful than commercial shorthand often suggests. It is more limited because a fuel shock, even a severe one, does not automatically excuse performance.⁴⁵ The current geopolitical environment should therefore push infrastructure participants to move the discussion upstream when possible. For existing contracts, parties should act early: preserve notices, build the factual record, test mitigation options, and consider whether price escalation, change, delay, suspension or renegotiation mechanisms offer a better answer than force majeure. For future contracts, fuel risk should be addressed directly: who bears the risk of ordinary volatility, when do extraordinary disruptions trigger relief, whether relief is limited to time or includes cost, and what procedures apply before default or termination take effect.

The practical recommendation is not to rely on force majeure as the main response to fuel disruption. Instead, treat it as a last resort. The more durable approach is to draft contracts that adequately allocate fuel risk to support resilient infrastructure contracts.

Footnotes

1. Yousef Saba & Trixie Sher Li Yap, "Kuwait Declares Force majeure, Cuts Crude Oil Output Due to Middle East Conflict" (March 7, 2026), online: Reuters; Aref Mohammed & Ahmed Rasheed, "Exclusive: Iraq Declares Force majeure on Foreign-Operated Oilfields Over Hormuz Disruption, Sources Say" (March 20, 2026), online: Reuters; Reuters, "Bahrain's Bapco Announces Force majeure on Operations" (March 9, 2026), online: Reuters; Marwa Rashad, "Exclusive: Qatar Shuts Gas Liquefaction, Will Take Weeks to Restart, Sources Say" (March 4, 2026), online: Reuters.

2. Fatih Birol, Executive Director, International Energy Agency, interview with CNBC at CONVERGE LIVE, Singapore (April 23, 2026).

3. International Energy Agency, “How global oil supplies have readjusted to help fill the huge gap left by the Strait of Hormuz shock” (June 22, 2026), online: IEA; International Energy Agency, “The Middle East and Global Energy Markets: Key facts on the Strait of Hormuz, oil and gas markets, and the IEA’s response” (accessed July 7, 2026).

4. Josh Gabbatiss, "Iran war analysis: How 60 nations have responded to the global energy crisis" (April 8, 2026), online: Carbon Brief.

5. Atlantic Paper Stock Ltd v St Anne-Nackawic Pulp & Paper Co, 1976. 1 SCR 580 Atlantic Paper. ; Naylor Group Inc v Ellis-Don Construction Ltd, 2001 SCC 58, 2001. 2 SCR 943 Naylor Group. ; Civil Code of Québec, CQLR c CCQ-1991, arts 1470, 1693 CCQ. .

6. Atlantic Paper, supra note 4; Naylor Group, supra note 4.

7. Atlantic Paper, supra note 4; Naylor Group, supra note 4; Frustrated Contract Act, RSBC 1996, c 166, s 2.

8. Frustrated Contract Act, supra note 6; Frustrated Contracts Act, RSO 1990, c F.34, s 3(6); Frustrated Contracts Act, RSA 2000, c F-27, ss 2(1), 7.

9. Atlantic Paper, supra note 4.

10. Atlantic Paper, supra note 4 at 583; Atcor, supra note 10 at paras 11–12.

11. Atlantic Paper, supra note 4 at 583, 585–87.

12. Ibid; Atcor, supra note 10 at paras 11–12, 35.

13. Ibid at paras 11–12, 35–37.

14. Atcor, supra note 10 at paras 11–12.

15. Ibid at paras 1, 8–12, 30, 37.

16. Naylor Group, supra note 4 at para 53.

17. Ibid.

18. Frustrated Contract Act, RSBC 1996, supra note 6, s 2.

19. Ibid.

20. Frustrated Contracts Act, RSO 1990, supra note 8, s 3(6).

21. Frustrated Contracts Act, RSA 2000, supra note 8, ss 2(1), 7; Atcor Ltd v Continental Energy Marketing Ltd, 1996 ABCA 40 “Atcor”. .

22. Frustrated Contracts Act, RSA 2000, supra note 8, ss 2(1), 7.

23. Naylor Group, supra note 4 at para 53; Frustrated Contract Act, RSBC 1996, supra note 6, s 2.

24. CCQ, supra note 4, arts 1470, 1693.

25. Ibid.

26. Deslauriers-Goulet, Charlotte and Fournier, Axel, "Contractualiser l'incertitude : une solution à l'interdiction de modifier le contrat municipal" in Développements récents en droit municipal, vol 530 (Montréal: Yvon Blais, 2023).

27. CCQ, supra note 4, arts 1470, 1693; Churchill Falls (Labrador) Corp v Hydro-Québec, 2018 SCC 46, 2018. 3 SCR 101 Churchill Falls. , at paras 88–98.

28. CCQ, supra note 4, arts 1470, 1693.

29. Ibid, art 1693; Churchill Falls, supra note 26 at paras 88–98.

30. Deslauriers-Goulet & Fournier, supra note 25.

31. Transport Rosemont inc. v Montréal (Ville de), 2008 QCCS 5507.

32. Services Ricova inc. v Ville de Chambly, 2020 QCCS 739.

33. Didier Lluelles & Benoît Moore, Les obligations, 3rd ed (Montréal: Thémis, 2018) at para 4341.

34. CCQ, supra note 4, art 1693; Churchill Falls, supra note 26 at paras 88–98.

35. Ibid at paras 5, 88–98, 112–13, 136.

36. Ibid at paras 2, 136.

37. Atlantic Paper, supra note 4 at 583, 585–87; Churchill Falls, supra note 26 at paras 88–98, 136.

38. CCQ, supra note 4, arts 1470, 1693; Atlantic Paper, supra note 4; Naylor Group, supra note 4 at para 53; Churchill Falls, supra note 26 at paras 88–98, 112–13.

39. Atlantic Paper, supra note 4 at 583; Atcor, supra note 10 at paras 11–12.

40. Atcor, supra note 10 at paras 11, 30, 35–37; CCQ, supra note 4, arts 1470, 1693.

41. Atlantic Paper, supra note 4; Atcor, supra note 10 at paras 30, 35.

42. Atlantic Paper, supra note 4; Atcor, supra note 10 at paras 11–12, 35–37; Naylor Group, supra note 4 at para 53.

43. Atcor, supra note 10 at paras 11–12, 30, 35–37.

44. Atlantic Paper, supra note 4; Atcor, supra note 10 at paras 11–12, 30, 35–37.

45. Atlantic Paper, supra note 4 at 583–87; Atcor, supra note 10 at paras 11–12, 35.

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