This article is written from the perspective of our senior dispute resolution practice. It is intended to assist contractors, employers, and project owners in understanding the contractual implications of the current conflict. It is not legal advice. Every contract and every factual situation requires specific analysis.
The ongoing conflict involving Iran is not a distant geopolitical event for those of us operating in the Gulf construction sector. It is a live commercial risk that is already reshaping project cost bases, insurance premiums, supply chains, labour availability, shipping routes, and — inevitably — the pattern of claims and disputes that will emerge across the region in the months ahead.
In over four decades of advising on construction contracts across conflict-affected jurisdictions — from North Africa to the Levant, from East Africa to the Caucasus — one principle has held firm: contractors who understand their contractual position before the crisis matures are the ones who recover their entitlements. Those who wait until invoices pile up and schedules collapse rarely do.
This article sets out, in practical terms, what GCC contractors and employers should be doing now.
1. The nature of the risk: war, hostilities, and "the menace thereof"
Under the FIDIC Red, Yellow, and Silver Books (1999 and 2017), armed conflict in the region of the Works triggers a defined Employer's Risk. Sub-Clause 17.3 of FIDIC 1999 (and its equivalent in the 2017 edition) lists "war, hostilities (whether war be declared or not), invasion, act of foreign enemies" as risks allocated to the Employer. These are not force majeure events in the general sense — they are specifically and contractually the Employer's responsibility.
The consequences of this allocation are significant. If a Works site, a supply route, or a specific operation is physically affected by hostilities, the contractor's entitlement is not merely an extension of time. It extends to reimbursement of Cost, and in certain circumstances, Cost plus reasonable profit, depending on which sub-limb of the Employer's Risk is engaged.
Crucially, the clause captures not only actual hostilities but their menace. The threat of military action — a closure of a strait, a missile warning, an evacuated airspace — can itself trigger entitlement. This is a subtle but decisive point that is frequently missed.
2. Force majeure (FIDIC 1999) and "Exceptional Events" (FIDIC 2017)
Sub-Clause 19 of FIDIC 1999 (Force Majeure), and its renamed successor Sub-Clause 18 ("Exceptional Events") in FIDIC 2017, operate in parallel to the Employer's Risk provisions. They are not identical, and the distinction matters.
Force majeure / Exceptional Events are defined by their cumulative characteristics: the event must be beyond the party's control; the party could not reasonably have provided against it before entering into the contract; having arisen, it could not reasonably have been avoided or overcome; and it is not substantially attributable to the other party. Importantly, both editions include "war, hostilities ... invasion, act of foreign enemies" as illustrative examples — meaning the contractor may have a choice of route for the same event.
The practical implication: where hostilities occur in the country in which the Works are located, the Employer's Risk provisions are typically more generous (Cost and, for certain risks, profit). Where the event occurs elsewhere but its effects are felt through supply chain disruption, shipping delays, or sub-contractor mobilization failures, force majeure / Exceptional Events may be the more defensible route.
Do not assume the two regimes are interchangeable. Notices given under the wrong clause have, in my experience, been rejected on that basis alone.
3. The Strait of Hormuz question
Approximately 20% of the world's oil passes through the Strait of Hormuz. A significant proportion of heavy construction equipment, steel, cement clinker, and specialty materials destined for Saudi Arabia, the UAE, Qatar, Kuwait, Bahrain, and Oman arrives by vessels transiting this same chokepoint.
Disruption to Hormuz — whether through closure, elevated insurance premiums, war-risk surcharges on shipping, or rerouting via longer voyages — will cascade through project cost bases within days. Contractors with major supply contracts on CIF or FOB terms need to re-examine their Incoterms allocation, their carrier's war-risk clauses, and their ability to pass through cost escalation to the Employer under the contract.
Under FIDIC, the relevant route depends on the contract's price-adjustment provisions. If the contract contains a Schedule of Cost Indexation (Sub-Clause 13.8), material cost escalation may already be contractually covered — but only for the categories and indices specified. War-risk surcharges and insurance premiums are not typically captured by standard indices. They must be claimed separately, under force majeure, Exceptional Events, or Changes in Law, depending on jurisdiction and drafting.
4. Changes in Law and sanctions risk
Sub-Clause 13.6 (FIDIC 2017) — Changes in Law — is likely to be one of the most frequently invoked provisions in the coming period. Export controls, secondary sanctions, banking restrictions affecting letters of credit, and restrictions on dual-use equipment can all qualify as "Changes in Law" affecting the performance of the Works.
In my advisory work across jurisdictions affected by sanctions regimes, I have seen three recurring failures:
- Failure to notify within the contractual timeframe. Changes in Law claims are no less subject to the 28-day notice requirement than any other claim. The moment a bank refuses to process a payment, a customs authority detains a shipment, or a compliance officer flags a sub-supplier, the notice clock starts.
- Confusion between the law of the contract and the law of the place of performance. A change in a third country's law that affects your supply chain is not automatically a "Change in Law" under the contract. Careful drafting — and careful pleading — is required.
- Under-substantiation of the causal link. It is not enough to point to a new sanction. The contractor must demonstrate, with contemporaneous records, that the sanction has in fact increased Cost, delayed progress, or rendered specific performance unlawful.
5. Insurance: the quiet risk
Most GCC construction insurance policies — Contractors' All Risks (CAR), Erection All Risks (EAR), and Marine Cargo policies — exclude war, invasion, and acts of foreign enemies under standard market exclusions (for example, the London Market's War, Civil War & Related Perils Exclusion). Some policies carry limited write-backs or endorsements for specific perils, but these are the exception.
If the project is materially damaged or a shipment is lost in transit due to a war-related event, the contractor's normal insurance recovery route is closed. The only contractual route is then the Employer's Risk allocation under FIDIC — which is precisely why Sub-Clause 17.3 exists.
Employers, for their part, should be reviewing their own political risk and war coverage now, before premiums in the region harden further. Self-insuring the Employer's Risk allocation in a FIDIC contract without a political risk policy is an exposure that few finance committees would knowingly accept.
6. Labour, mobilization, and the practical ground reality
The GCC construction workforce is overwhelmingly expatriate. Conflict risk affects labour supply in ways that are rarely addressed explicitly in construction contracts:
- Source-country governments imposing travel restrictions on their nationals.
- Evacuation orders issued by foreign embassies.
- Disruption to air corridors affecting rotation of personnel.
- Insurance carriers adding conflict-zone exclusions to workforce policies, raising the cost of providing the contractual standard of care.
Each of these can manifest as a delay event, a productivity disruption, or both. Under FIDIC, the contractual route depends on the precise cause. A source country export ban on construction workers is typically not the Employer's Risk. A host country airspace closure or a regional state-of-emergency declaration, however, may well be — either directly or via force majeure / Exceptional Events.
The message is uncomfortable but simple: do not conflate "things are difficult" with "we have a claim." Every claim must trace to a specific contractual entitlement, a specific notice, and a specific evidential record.
7. Saudi Vision 2030 giga-projects: a specific profile
Saudi Arabia's giga-projects — NEOM, ROSHN, Diriyah, the Red Sea, Qiddiya, King Salman Park — occupy a particular position in the current risk landscape. They are:
- Geographically concentrated in regions not directly adjacent to the primary conflict theatre, which reduces direct hostility risk.
- Heavily dependent on international supply chains traversing Hormuz and the Red Sea, which increases supply-chain and shipping cost exposure.
- Operating under a mix of FIDIC and bespoke conditions, with increasing use of amendments that shift traditional risk allocations — including occasional attempts to shift Employer's Risk for war back to the Contractor through special conditions.
Contractors on these programmes should review their Conditions of Particular Application with care. A well-drafted Employer's Risk allocation in the General Conditions can be substantially diluted by an amendment in the Particular Conditions that few contract administrators read attentively at tender stage.
8. Practical advice: what to do this month
For any contractor with active GCC projects, the following steps are not optional:
- Map your exposure. Identify every contract in your portfolio, the governing form (FIDIC 1999, FIDIC 2017, NEC, bespoke), the risk allocation for war and hostilities, and any Particular Conditions amendments. Do this in writing.
- Identify the materials, equipment, and personnel exposed to the conflict. Which items transit Hormuz? Which sub-contractors source from affected jurisdictions? Which staff rotate through affected airspace?
- Review your insurance policies. Obtain written confirmation from brokers of the scope of war exclusions and any available endorsements. Do not rely on recollection from placement meetings.
- Issue precautionary notices. If there is any reasonable basis to believe that an event — whether crystallized or threatened — may affect your Works, issue the notice now. Under FIDIC 2017, a notice that is arguably premature is infinitely better than one that is arguably late. The 28-day time-bar is unforgiving.
- Establish your contemporaneous records system today. War-related claims are evidentially intensive. Daily site diaries, shipping records, freight invoices, war-risk surcharges, labour roster disruptions, and communications from sub-contractors all become evidence. If you start collecting this after the event, you are already behind.
- Review your price-adjustment and Change-in-Law clauses. Understand which of your cost exposures are already covered by indexation, and which require separate claim pathways.
- Engage experienced dispute resolution advisers early. In conflict-affected claim scenarios, strategic decisions made in the first weeks — choice of clause, framing of notice, structure of records — determine outcomes that only crystallize twelve to twenty-four months later.
9. For employers and project owners
Employers face the mirror-image of these issues. The contractual allocation of war-related risk to the Employer was made at the time the Conditions were drafted — often many years ago, in a different geopolitical environment. Today, the financial consequence of that allocation is higher.
A proactive Employer should:
- Review political-risk and war insurance coverage for the project, in the name of the Employer itself.
- Engage with lenders (where the project is financed) to confirm that coverage aligns with loan agreement requirements.
- Instruct the Engineer to adopt a rigorous but fair approach to Contractor claims — reflexive rejection of legitimate war-related claims leads to escalation, DAB referrals, arbitration, and ultimately larger financial exposure.
- Consider whether a structured Contract Amendment is more economic than protracted claim-by-claim resolution across the remaining project duration.
10. A final observation on dispute resolution pathways
I have sat as a sole member of standing Dispute Adjudication Boards on major infrastructure programmes in politically volatile jurisdictions. What I have consistently observed is that conflict-period claims, when left unresolved in real time, tend to accumulate into existential disputes at project end — disputes that are disproportionately expensive, slow, and damaging to the relationship between the parties.
The DAB / DAAB mechanism under FIDIC 2017 is designed precisely for this situation. A standing board, regularly visiting site, familiar with the project, and empowered to issue decisions within 84 days, is the single most effective tool the construction industry has developed for managing exactly this kind of evolving risk. Parties that have not yet appointed a DAAB on their current projects should do so now. Parties that have should engage the board actively and constructively.
Arbitration under ICC, LCIA, DIAC, or SCCA rules remains available, and will undoubtedly be invoked on a number of major GCC projects arising from the current crisis. But arbitration is a last resort. The discipline of contract administration, the timeliness of notices, the quality of records, and the skill with which disputes are framed at DAB level are what determine outcomes long before an arbitration hearing is convened.
Closing remarks
Construction contracts in the GCC are built on a foundation of contractual discipline that was designed to survive precisely the kind of shocks that we are now facing. The FIDIC framework — for all its procedural complexity — allocates these risks sensibly and provides the mechanisms to address them. The question is not whether the contractual tools exist. They do. The question is whether the parties using them are exercising the discipline required to make them work.
From my practice across four decades and two dozen jurisdictions, the answer has consistently been: those who prepare recover; those who improvise do not.
The time to prepare is now.
About the author: This analysis draws on the Claimetrica Dispute Resolution & Contract Law practice. Our senior adviser has over 45 years of international experience in forensic delay analysis, time and cost claims, and dispute board practice across infrastructure projects in Africa, the Middle East, Turkey, Ukraine, and the Caribbean. He is a Member of the Institute of Arbitrators (UK), the Society of Construction Law (UK), and the Dispute Resolution Board Foundation (DRBF), and a Contributing Author to Lukas Klee's International Construction Contract Law (Wiley, 2nd edn 2018).
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