Insights

As featured on CNBC The potential closure of the Strait of Hormuz has raised immediate concerns across global energy and commodities markets with broad assertions of force majeure across the supply chain. The key to looking at a Force Majeure issue is to assess what the obligation is, assess whether one has truly been prevented from performing, and to look at what steps of reasonable mitigation could be taken. The correct question is not whether the Strait is disrupted but whether a party has been prevented from performing its specific obligation. Where the Market Is Getting It Wrong 1. Treating the event as the trigger     A geopolitical event — even on as significant as a closure of Hormuz — is not, by itself, enough. The legal test remains whether performance has been prevented, not just made more difficult or     expensive. 2. Assuming supply chain pass-through     Even if upstream suppliers are affected, downstream parties must establish their own entitlement.    “One person’s force majeure doesn’t translate to another.  A shipping force majeure is not the same as a trading force majeure” 3. Ignoring mitigation obligations     Parties must still consider:     •  alternative routes     •  substitute cargo     •  reallocation strategies A failure to act will be scrutinised closely in any dispute, bearing in mind, “one person’s mitigation can be different to another.” Key Takeaway Force majeure is not triggered by headlines. It requires clear demonstrated on how the event