Impact of the Iran war on international trade relations

The military escalation in Iran is putting pressure on international supply chains and raising key legal questions for companies, such as risk distribution in the event of supply disruptions, the application of force majeure clauses, and the possible termination of contracts. Dr. Vanessa Pickenpack explains the legal consequences for contracts in the context of international trade relations and outlines the options available to companies now.

Rising oil prices and disrupted supply chains are posing challenges for companies worldwide. Risks arise, among other things, from possible blockades of the Strait of Hormuz and restrictions on air traffic. Industries with highly international supply chains, such as the automotive industry, retail, consumer goods, and construction, are particularly affected.

Who bears the risk if the supply chain is disrupted by the war in Iran?

The risk of disrupted supply chains generally lies with the supplier. They must ensure that the agreed delivery is made, even if external events such as the war in Iran affect the delivery routes. In such cases, the supplier is obliged to look for alternatives, such as other transport routes or replacement suppliers, even if this results in additional costs. Which measures are reasonable for the supplier in each individual case depends on the specific circumstances and must be carefully weighed up.

Companies should also note that they must inform their contractual partners at an early stage about foreseeable delivery failures in order to fulfill their obligation to mitigate damages. Transparent and prompt communication is important in crisis situations in order to avoid disputes. Careful and complete documentation is essential if legal proceedings cannot be avoided.

Do force majeure clauses apply in the event of delivery failures or delays due to the war in Iran?

Force majeure clauses cover unforeseeable events that cannot be influenced. Wars, blockades, or government intervention are often explicitly mentioned as cases of force majeure. Such clauses may cover, for example, the blockade of the Strait of Hormuz if sea transport has been agreed upon. In the event of force majeure, companies may be temporarily released from their performance obligations and the contractual partner's obligation to provide consideration also ceases to apply.

It is important to note that force majeure clauses usually stipulate strict notification requirements and deadlines. In addition, suppliers may be subject to obligations to cooperate.

Can companies adjust or terminate contracts due to extreme price increases?

This depends largely on the terms of the contract. Without an explicit price adjustment or hardship clause, the parties are generally bound by the agreed terms. As a rule, the contractor bears the risk of price increases. A right of termination or withdrawal may be provided for in the contract, for example if the force majeure event continues for a certain period of time.

In the absence of such a provision, a contract adjustment due to disruption of the basis of the transaction may be considered under certain conditions. However, this is only possible in exceptional cases and requires a comprehensive examination of the individual case. In particular, it is a prerequisite that the basis of the transaction has changed in an unforeseeable manner as a result of the war in Iran and that it is unreasonable to adhere to the originally agreed contract terms. It may be relevant here that a military escalation – and any associated price increases – in this conflict, which has been going on for decades in a politically unstable region, was entirely to be expected in recent months.

If an adjustment of the contract is not possible or unreasonable, the contract can be terminated by withdrawal or cancellation. This is always a case-by-case decision. There are no generally applicable thresholds of reasonableness.

To mitigate risks, companies should generally avoid escalation as far as possible and give priority to seeking a mutually agreeable adjustment of the contract. Withdrawals, terminations, delivery stops, or price increases usually entail risks of damage claims.

What are the obligations of management in a crisis?

Management bears a special responsibility in geopolitical crisis situations such as the Iran war. It is obliged to continuously monitor and assess the risks associated with the crisis, particularly with regard to supply chains, sales markets, and general business activities. If risks are identified, it must examine alternatives and restructure supply chains if necessary.

In crisis situations, documentation and information obligations are particularly important: all measures and decisions should be carefully documented in order to be able to demonstrate compliance with legal and regulatory requirements. Significant risks and measures taken must be communicated promptly and comprehensively to shareholders, supervisory bodies, and, if necessary, authorities. Failure to comply with these obligations can place a considerable burden not only on the company, but also on the members of its governing bodies personally. Proactive action, transparent communication, and compliance with all relevant requirements are therefore essential.

How can conflicts be avoided and how can companies prepare for legal disputes?

Performance disruptions, such as delivery failures, delays, or quality defects resulting from geopolitical crises such as the Iran war, can lead to years of legal disputes between contractual partners. These consume internal company resources and money.

Proactive crisis management aimed at avoiding disputes, with early legal advice, is therefore worthwhile: swift, open, and transparent communication with the contractual partner can help to identify conflicts at an early stage and, in the best case, resolve them amicably. It is also important to clarify your own rights and obligations, the options for action, and the opportunities and risks of a dispute. Lawyers specializing in dispute resolution can accompany or lead the communication and steer it towards an amicable solution.

In the event that escalation cannot be avoided, companies should take timely precautions. In a conflict, comprehensive and complete documentation is crucial: companies should carefully document all relevant processes, measures, and decisions, archive communications, and record and document any damages that may accrue. This makes it easier to present evidence in a legal dispute.

Companies that are now entering into new business relationships that could be affected by the Iran war should take the risks into account when drafting contracts. In light of current events, clauses on liability, contract amendments, information obligations, and dispute resolution are particularly relevant.

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