The latest Middle East crisis has already prompted the International Energy Agency  to describe the situation as the largest supply disruption in the history of the global oil market. Whichever way, and no matter how quickly the joint US and Israeli action against Iran plays out, the damage to business continuity, especially supply chains and the upward pressure on inflation right across the commercial spectrum is already done and won’t end as the missile and drone swarms stop.

Legal disputes

What will inevitably flow from this is a tidal wave of contractual disputes, as customers, suppliers and their professional advisers haggle over the Doctrine of Frustration under English Law, and Force Majeure clauses. Lawyers, arbitrators and ultimately, Courts will be busy for years to come resolving these disputes.

Contract adaptation

Urgent consideration will need to be given to whether contractual variations or standstill agreements may be appropriate to preserve commercial relationships while the situation remains fluid or to change them to reflect new realities.

Trade credit impacts

The crisis has exacerbated credit risk right across supply chains, with an increased chance of customer insolvencies and payment defaults. A consequential de-stabilising knock-on effect is the likelihood that trade credit insurers may reduce credit limits, withdraw cover for some higher‑risk jurisdictions, or impose more restrictive terms, potentially affecting liquidity and working capital management for businesses.

Insurance considerations

Standard business interruption policies often contain war exclusions, which may limit or eliminate cover for losses arising from the current conflict. Businesses should review their policies as a top priority to understand the scope of any exclusions and to establish whether separate war risk, political risk, or terrorism insurance is in place or could be available.

Cyber risk

The internet being the largely lawless jungle it has become, geopolitical crises now frequently prompt a surge in cyber attacks, including state‑linked or politically motivated intrusions. Making sure all employees are vigilant about what they click on and making sure the company’s current IT environment is robust is key. In addition, cyber policies now tend to feature war‑related or nation‑state exclusions, which may limit cover for attacks perceived to be connected to hostile state activity. Businesses should review their cyber cover policies to understand where exclusions may apply and whether supplemental cyber‑war or critical‑infrastructure endorsements are required.

Contractual and insurance interaction

Events that qualify as Force Majeure may not necessarily qualify for an insurance claim, so it is important to assess contractual and insurance positions in parallel. Equally, when cyber attacks during a geopolitical crisis cause significant disruption, cyber policies could be an alternative way to recover business interruption losses, provided the triggering event falls within the policy’s ambit and is not excluded. Examples include major system outages, data corruption, or significant operational downtime.

Practical risk mitigation options

In view of these issues, UK businesses themselves operating in the Middle East, or trading with critical stakeholders impacted by the crisis there, especially customers and suppliers, can take a number of measures to eliminate or at least mitigate the level of risk they are now facing.  These include:

• Reviewing contracts with exposure to the Middle East, with a particular focus to Force Majeure, sanctions, termination, and insurance provisions
• Where transactions and contracts are still in the process of negotiation, reassessing valuations and agreeing the requisite contractual protections with counterparties to reflect a proper sharing of the sharply increased risks arising from the crisis
• Making sure all notice requirements have been identified and are being complied with
• Opening dialogue with counterparties as quickly as possible to discuss and agree how any actual or potential disruption can be managed on a collaborative basis
• Monitoring all relevant sanctions regimes and taking expert legal advice on compliance obligations
• Reviewing existing insurance arrangements and conducting a comprehensive policy gap analysis including property, business interruption, cyber, political risk, trade credit cover. Discussing the availability and cost of additional war risk or political risk cover with brokers, where necessary
• Reviewing and strengthening cyber resilience, incident response procedures, and data backup arrangements where appropriate
• Making sure that any claims are notified promptly to insurers in compliance with policy requirements for reporting timelines

Mitigating business risk

The current crisis in the Middle East is a potentially existential threat to businesses with any significant activities either directly or indirectly in the region, which will generate complex, fast moving and time critical commercial and legal challenges.

UK businesses that review their position to take proactive steps to mitigate risk asap are the most likely to avoid the worst impacts of these major uncertainties. Being ahead of the game, where possible, is surely the right strategy. Reliance on legal protections and remedies may not be sufficient, nor necessarily the best approach on its own. Constructive dialogue with trading partners, robust contractual drafting and appropriate insurance cover need to run alongside purely legal considerations.

If you are seeking professional advice for your business, Opus is here to help. We can arrange for you to speak to one of our Partners, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.