Summary: This article examines the legal principles which allow for discharge of contractual performance, in the context of the ongoing war in West Asia and the blockade of the Strait of Hormuz.
The war in West Asia has disrupted energy supplies to India, which imports over forty percent of its crude oil[1], sixty percent of its natural gas[2] and sixty-three percent[3] of its nitrogen fertilizers. In the few weeks since Operation Epic Fury against Iran, widespread damage has been inflicted on the energy infrastructure of the Gulf Cooperation Council countries, even as a tense chokehold remains on the Strait of Hormuz. The far-reaching effects of this unprecedented crisis are already being felt,[4] with businesses across sectors facing the compelling question: can contractual obligations still be performed, and if not, what recourse do they have under law?
When faced with such extraordinary events that affect the performance of contractual obligations, contracting parties may be compelled to consider invoking force majeure or claiming frustration.
Force Majeure
A force majeure clause in a contract can excuse performance when a specified extraordinary event beyond the control of the parties occurs.[5] Principally, when a contract, either impliedly or expressly, contains terms according to which performance would stand discharged upon the occurrence of specified circumstances, the dissolution of the contract takes place under the terms of the contract itself. Such clauses should not also be stretched to cover events that a prudent party would have foreseen at the time of contracting.[6]
Most commercial contracts specify war as a triggering event for force majeure and set out the consequences that follow. However, the outbreak of a war does not by itself allow performance to be excused. What becomes relevant is whether the war, or acts in furtherance[7] thereof, have rendered performance of the contract impossible or fundamentally different from what was agreed.
Frustration
Where a force majeure clause does not exist in the contract or is inapplicable, the doctrine of frustration can be considered instead.[8]Invented by courts to supplement defects of the actual contract which the parties did not fully anticipate[9], frustration operates a rule of positive law, allowing parties to be discharged from future obligations when performance becomes impossible or unlawful due to an unpreventable event, and the contract itself is silent on the supervening circumstances. Simply put, it is “a device, by which the rules as to absolute contracts are reconciled with a special exception”.
“Impossibility” is not limited to physical impossibility[10] but also covers situations where a supervening event so fundamentally undermines the basis of the bargain that performance, though still technically possible, becomes impracticable having regard to what the parties intended. Ultimately, the practical application of the doctrine depends on the facts of each case, with a “certain elasticity” being considered essential in assessing a given situation.[11]
The questions which now arise
With the disruption of critical energy supplies from the GCC, the immediate question that arises is whether a shortage or cessation of supply, or a consequent increase in prices[12], can allow a party to invoke force majeure or claim frustration.
Generally, a contract is not frustrated merely because the circumstances in which it was made have changed. Courts do not permit a party to walk away from a contract simply because performance has become more expensive. Where a contract sets a fixed price, courts will normally hold parties to the agreed bargain, even if war or other extraneous events have driven costs beyond what was anticipated, unless there is an agreement to the contrary.[13]
A 1961 judgement of the House of Lords[14] and a more recent 2022 judgement of the Madras High Court[15] illustrate the proposition that a contract is not frustrated merely because its performance has become costlier, so long as it is not fundamentally different from what was agreed.
Notably, in Tsakiroglou, it was observed that increased costs might constitute a possible ground for frustration where they were so extreme as to be “astronomical”. The Madras High Court echoed this position while holding that the non-supply of transformers was justified on account of a 400% increase in their price, caused by unexpected war conditions in the Middle East and higher excise duties, which were considered force majeure conditions.[16]
Another immediate consequence of the war and blockade of the Strait is the shortage of supplies, which directly affects production capabilities across industry sectors.[17] A UK case[18] is instructive, in which the court upheld the suspension of a contract on account of the outbreak of World War I, recognizing that there must be an actual shortage or a real obstacle to manufacturing or delivering the goods, directly caused by the triggering event.
On a conspectus, the position that emerges is as follows:
- For parties to be discharged, unexpected circumstances must have emerged, resulting in a situation fundamentally different from that to which the parties agreed to be bound.
- The supervening event must occur without the fault of either party.
- A party’s obligations under a contract are not discharged merely because performance becomes onerous. An “astronomical” increase in costs may, however, constitute a ground for frustration.
- The foreseeability of a supervening event, such as a price escalation, may also constitute a material consideration in assessing a plea for discharge.
- Parties contracting during unsettled conditions, such as war, are expected to reasonably foresee the resulting delays or disruptions, so as not to invite a finding of self-induced frustration.[19]
- A performing party may be entitled to claim compensation for increased costs even in the absence of a price escalation clause, provided the foundational assumptions of the contract have been displaced by supervening circumstances beyond that party’s control.[20]
Apart from discharge, parties who are assessing the commercial and legal implications of performance in the prevailing situation can also consider, wherever possible, the commercially prudent approach of seeking to renegotiate and restructure their contractual relationship. Parties are allowed to mutually substitute their contracts, rescind the original, or alter or novate its terms. For instance, contracts with fixed-price clauses that are now commercially unviable or delivery schedules which cannot now be adhered to, may require mutual reconsideration and renegotiation, so as to avoid prolonged litigation amidst an already challenging economic situation.
The ongoing war exposes numerous geopolitical and economic vulnerabilities of the global economy that have become significantly more interdependent over the past seventy-five years. While there are signs of a more seismic shift in the global order, the immediate effect of disruption on this scale in global supply chains is bound to have a cascading impact on the performance of contracts. Whether courts can continue to rely on pre-existing standards of what constitutes a reasonable price increase or what qualifies as astronomical, and what amounts to an acceptable delay in supply, will likely have to be reassessed as disputes emerge. Until then, however, the general position that remains is that discharge is far more likely to succeed where (a) a specific resource is physically unavailable, with no alternative, or where a government order has rendered performance illegal; and (b) the very purpose of the contract has been destroyed, rendering performance impossible and not merely costlier to perform.
[1] Exclusive: Russia prepared to divert oil to India as Middle East conflict disrupts flows, source says | Reuters
[2] India boosts LPG imports from US, Norway as Gulf supplies tighten | Reuters
[3]https://www.news18.com/explainers/iran-israel-war-jolts-fertiliser-supply-chains-but-india-has-enough-stocks-for-now-explained-ws-l-9950065.html
[4] The Indian government has re-prioritized the allocation of natural gas while exploring alternative sources and routes for the supply of crude oil.
[5] Lebeaupin v. Richard Crispin & Co [1920] 2 KB 714
[6] South East Asia Marine Engineering and Constructions Ltd. v. Oil India Ltd., (2020) 5 SCC 164,
[7] Finelvet A.G. v. Vinava Shipping Co. Ltd. [1983] 1 WLR 1469,
[8] Energy Watchdog v. Central Electricity Regulatory Commission (2017) 14 SCC 80
[9] Effect of War on Contracts. Recent Developments, George J. Webber, Transactions of Grotius Society, 1947, Vol. 33, Problems of Public and Private International Law
[10] Satyabrata Ghose v. Mugneeram Bangur & Co. (1953) 2 SCC 437
[11] Effect of War on Contracts. Recent Developments, George J. Webber, Transactions of Grotius Society, 1947, Vol. 33, Problems of Public and Private International Law
[12] The Hormuz bottleneck: How Iran war is driving up oil, gas and fuel prices worldwide and how countries are responding. Since February 28, 2026, global crude oil prices have increased between 40% to 58%.
[13] Alopi Parshad & Sons Ltd. v. Union of India (1960) 2 SCR 793
[14] Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH, (1961) 2 All ER 179 (HL):A seller was contracted to deliver produce via the Suez Canal. When the Canal closed, the goods were shipped via the Cape of Good Hope — three times the distance, at double the freight cost. The House of Lords held that the contract was not frustrated, since performance, though costlier, was not fundamentally different from what had been agreed.
[15] Starshine Logistics v. Tamil Nadu Civil Supplies Corporation, 2022 SCC OnLine Mad 274: A twenty-five percent price increase caused by the Russia-Ukraine war and compounded by Indonesia’s export ban did not amount to frustration, given that the suppliers were not actually prevented from delivering simply because they faced higher costs.
[16] Easun Engineering Co. Ltd v. The Fertilisers and Chemicals Travancore Ltd 1990 SCC OnLine Mad 2
[17] Iran war impact: Fuel crunch shuts 50 ceramic units in Gujarat’s Morbi – The Economic Times
[18] Tennants (Lancashire) Ltd v. CS Wilson & Co Ltd. [1917] AC 495
[19] Gambhirmull Mahabirprasad v. Indian Bank Ltd AIR 1963 Cal 163
[20] Tarapore and Company v. Cochin Shipyard Limited (1984) 2 SCC 680; A construction contract was executed on the assumption that the contractor would spend approximately Rs 2 crores in foreign exchange on specialized equipment and technical fees. Exchange rate fluctuations caused these costs to escalate far beyond the original estimate. The Court held that since the contractor had quoted its rates based on a specified cost estimate, and those costs had risen due to circumstances entirely outside its control, it was entitled to compensation for the additional expenditure. The absence of a price escalation clause did not bar such a claim.