Time To Relook The Force Majeure Clause In Contracts

What happens when the way long-term supply contracts were drafted, and the conditions under which they are now being performed, undergo a turbulent shift? What to do?

The window is open now, not later.

I.               Introduction and background

Due to the ongoing turmoil in the Middle East, many supply chain contracts are in disarray. The Strait of Hormuz has been cordoned off, through which approximately 20% of global petroleum liquids transit daily, driving up war-risk premiums and energy prices. India’s exposure to this crisis is structural rather than incidental, as it heavily relies on the Middle East for its oil and gas. Indian state refineries and private operators face simultaneous pressure on import costs, supply continuity, and the legal enforceability of their long-term procurement contracts.

The legal consequences have moved quickly. General Insurance Corporation of India (“GIC Re”), India’s mandatory reinsurer under IRDAI Regulations, issued a cancellation notice withdrawing hull war-risk reinsurance cover for Gulf routes effective  March 3, 2026. Furthermore, QatarEnergy declared force majeure on  March 4, 2026, following attacks on its Ras Laffan and Mesaieed facilities. Shell followed, declaring force majeure on cargoes purchased from QatarEnergy and resold globally. Through Petronet LNG, the same cascade has reached GAIL (India) Limited and Indian Oil Corporation, illustrating precisely how a single upstream force majeure declaration propagates through an entire supply chain within days.

As these issues multiply across the supply chain, from suppliers to buyers, and from buyers to their own customers, the legal question every Indian entity must now answer is simple: Does your force majeure clause cover what has happened, and have you done what the clause requires?

II.             Force Majeure: Promise Made, Promise at Risk

A.               What Is Force Majeure

Force majeure literally means ‘superior force’ in French. While in the law of Contract, it is a mechanism that excuses a party from performing its obligations when a specified extraordinary event beyond its control renders performance impossible or radically impeded. The clause is not an implied term of law under either English or Indian contract jurisprudence: it is entirely a creature of contract. If it is not written in, with adequate specificity, it does not confer protection.

A force majeure clause is validly invoked only when all of the following conditions are satisfied simultaneously:

• A specified triggering event must have occurred. Generic language, such as ‘act of God’ or ‘natural disaster’, has been held by English and Indian courts alike not to extend to geopolitical events.
• The event must be the direct cause of non-performance, not merely a background condition making performance less profitable.
• The event and its consequences must be genuinely beyond the party’s reasonable control; a risk that appears in the company’s risk register does not qualify.
• Performance must be rendered impossible; not merely more expensive, less convenient, or commercially disadvantageous.
• Prompt notice must have been given, typically ‘without delay’ or within a defined contractual period. A notice issued with delay or without a contractual stipulation is generally rejected by courts and arbitral tribunals.
• Reasonable steps towards mitigation must be taken, including exploring alternative performance routes, suppliers, or delivery methods, etc.

B.              The Mitigation Trap

The main question is whether the unforeseeable event, or the event that the party/ies concerned could not prevent, truly rendered performance impossible, and whether the party seeking relief can demonstrate that no reasonable alternative course of action was available. It is precisely at this juncture that most force majeure claims fail to withstand scrutiny.

Alternative routes, substitute terminals, different carriers or delayed loading windows may add time and money. That matters commercially. But increased costs alone will rarely carry a force majeure or frustration case where performance remained realistically possible according to the true governing intention of the parties. The more the record shows workable alternatives, the more the dispute becomes one of commercial hardship rather than impossibility of performance. These additional costs could be substantial, but courts have consistently declined to characterize additional costs, without genuine operational impossibility, as sufficient to engage a force majeure (“FM”) clause.

The mitigation trap catches two categories of parties. The first is the party that invokes FM to escape a commercially unfavourable contract, using the ongoing turmoil as cover for what is essentially a market-exit strategy. The second is the party that genuinely cannot perform via the primary route (per the governing intention of the parties) but fails to document its exploration of alternatives, which would either show the disappearance of the foundation of the contract or that the performance of the contract would radically change the obligation. Both categories face the risk of exposure if the FM notice is challenged. Documentation of mitigation steps, enquiries to alternative carriers, quotes obtained for alternative routing, and evidence of port closures or unavailability is as important as the FM notice itself.

III. Frustration of Contract: The Doctrine and Its Limits

Where a force majeure clause does not exist in a contract or where it exists but does not clearly cover the triggering event, the common law doctrine of frustration may provide relief. Under Section 56 of the Indian Contract Act, 1872, a contract becomes void if, after formation, performance becomes impossible. Courts are reluctant to relieve parties of commercial bargains simply because circumstances have become more onerous. The doctrine is a safety valve, not a general release mechanism for commercially inconvenient situations.

In the judgment of M/s Alopi Parshad & Sons Ltd. v. Union of India, the Apex Court of India stated that a contract is not frustrated merely because circumstances change and performance becomes onerous. Courts do not rewrite a commercial bargain because the economics turned against one party.

In the case of Energy Watchdog Vs. Central Electricity Regulatory Commission, the Supreme Court held that “neither was the fundamental basis of the contract dislodged nor was any frustrating event, except for a rise in the price of coal, excluded by Clause 12.4, pointed out. Alternative modes of performance were available, albeit at a higher price. This does not lead to the contract, as a whole, being frustrated.”

IV.           Whether GIC Re is in Dominant Position

GIC Re’s core functions are accepting reinsurance premiums, assuming risk and paying claims which are plainly commercial in nature and may fall within the definition of “enterprise” under the Competition Act, 2002. The sovereign exemption carved out under the statute is narrow, confined to defence, currency and atomic energy; reinsurance sits outside it entirely. The discussion of dominance follows directly: every Indian non-life insurer is legally mandated to offer GIC Re the first right to accept a cession from every policy written, a privilege no private reinsurer holds. On  reading  the relevant factors, statutory exclusivity, absence of domestic substitutes and absolute counterparty dependence, GIC Re might appear to be in a dominant position in the relevant market for reinsurance services in India.

If the above is assumed to be correct, then the more nuanced question i.e. “whether that dominant position has been exercised abusively?” is the one that can only be answered through a careful examination of the  factual circumstances. The escalation in insurance premium is not without commercial rationale, war risk exposure has increased drastically, global retrocession markets have contracted and there is a direct nexus between the cost of war risk and the revised pricing of the premium being offered. What distinguishes this situation, however, may not be the premium pricing revision itself but the structural asymmetry in which it arises: a statutory mandatory reinsurer, with no current domestic substitute, withdrawing an entire geographic risk class and offering reinstatement solely on its own revised terms, has possibly left the insurer with no negotiating position. It is this combination of circumstances, rather than the premium increase in isolation, that may likely form the core of any discussion. Whether it is ultimately a violation remains a question without a settled answer, the facts are live and the question is now squarely open.

V.             Practical Guidance for Indian Entities

A.      Immediate Actions

B.      Contract Drafting: A Few Tips for Future Transactions

The legal failures, yet again exposed by this crisis, are, in many cases, failures of contemplation, structuring, and drafting: force majeure clauses are drafted too broadly to cover geopolitical disruption; Incoterms are selected without a war risk insurance analysis. Indian companies negotiating contracts in the aftermath of this crisis can consider ensuring the following as a minimum standard:

1. Force majeure clauses must expressly enumerate war (whether declared or not); armed conflict; closure of routes; acts of state or quasi-state actors; sanctions and government embargoes; and actions of non-state actors, including armed groups. Generic language covering ‘acts of God’ or ‘natural disasters’ will not cover geopolitical events.
2. Rerouting clauses must address who bears the additional freight cost of deviation, whether rerouting extends the contractual delivery deadline and/or incurs additional costs and whether extended transit affects cargo insurance validity considering some insurance policies have maximum voyage duration limits that Cape rerouting may exceed.
3. Incoterms selection for Gulf and Red Sea routes: CIP under Incoterms 2020, which mandates the Institute Cargo Clause (A) plus war cover, provides the strongest buyer protection and may be considered the default for new contracts with Gulf counterparties.
4. War risk cost-escalation provisions should be included in long-term supply contracts, sharing elevated premium costs between the parties rather than loading the entire increase onto one side.

VI.           Conclusion

The disruption has exposed a fundamental mismatch between how long-term supply contracts were drafted and the conditions under which they are now being performed. Offtake agreements, commodity supply arrangements, and shipping contracts structured around stable route availability and predictable freight and insurance costs are operating in a materially altered commercial environment. Rerouting, where operationally viable, adds both transit time and cost and most existing contracts are silent on who bears those incremental burdens.

The situation in the Strait of Hormuz remains fluid. Force majeure notices already issued must be assessed on the facts as they stood at the time of invocation. What is apparent, whatever the geopolitical trajectory from here, is that Indian companies with Gulf, Red Sea, or Suez Canal exposure are now operating under contracts, insurance programs, and Incoterms arrangements that were almost certainly not written with this scenario in mind and that the gap between what those documents say and what their holders assumed they said is where the losses are accumulating in real time.

Those who take practical steps will find themselves in a materially stronger position than those who wait for the crisis to resolve before addressing its legal consequences. The framework is navigable. The window is open now, not later.

References

1. Al Jazeera, citing statement of QatarEnergy Minister Saad Al-Kaabi to the Financial Times, regarding the declaration of force majeure on LNG supplies following attacks on Ras Laffan and Mesaieed facilities.
2. Reuters / Al Jazeera, Shell declares force majeure on LNG contracts from Qatar, 11 March 2026.
3. M/s Alopi Parshad & Sons Ltd. v. Union of India, (1960) 2 SCR 793.
4. Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.