Energy, derivatives and construction disputes: Managing risk from supply disruption

The Strait of Hormuz, through which a significant share of global oil and LNG flows, has become a focal point. Shipping delays, rerouting, insurance constraints and wider geopolitical risk are already affecting supply. The impact is not confined to energy markets. It is feeding through into:

• LNG and gas supply into Europe and Asia
• fertilizers and petrochemicals dependent on gas feedstock
• metals and industrial production
• shipping and logistics
• construction materials and infrastructure delivery

Across these sectors, the issue is not just higher input costs. The more fundamental question is whether parties can continue to perform contracts on the terms originally agreed.

From disruption to contractual pressure: The limits of force majeure

Much of the immediate legal commentary has focused on force majeure, which is the natural starting point where routes are disrupted and supply chains are affected.

In practice, force majeure is only part of the picture.

Across LNG sale and purchase agreements, gas supply contracts and downstream offtake arrangements, force majeure provisions are typically tightly defined, subject to strict notice and causation requirements and linked to obligations to mitigate or overcome the event

Disruption on its own is not enough. The analysis instead turns on whether performance was actually prevented, or whether supply could have been maintained through other means. That is where positions begin to diverge.

In many long-term LNG and gas contracts, sellers are required to use “reasonable endeavours” or “best endeavours” to continue supply. For large suppliers operating across multiple assets and jurisdictions, that obligation is not limited to a single source of supply.

When disruption affects part of a portfolio, attention shifts to how the rest of that portfolio is used including whether alternative cargoes could have been sourced, whether swaps or reallocations were available and how limited volumes were distributed across existing buyers.

These are operational decisions taken under pressure, but they are also central to how claims are later assessed.

Recent LNG arbitrations have already dealt with similar issues. Buyers have argued that suppliers failed to deliver contracted volumes while continuing to sell into higher-priced markets. In those cases, the dispute has centred less on whether disruption occurred and more on whether the supplier acted in accordance with its contractual obligations in deciding how to respond.

Force majeure, in that setting, is not a complete defence. It sits alongside, and is often secondary to, questions of mitigation and conduct.

The back-to-back problem

The effect of disruption is rarely contained within a single contract. It moves through the supply chain.

Energy typically passes through a series of linked arrangements from producers to traders or utilities, traders to industrial users and industrial users to downstream customers. Each layer is structured differently. Risk allocation, pricing mechanisms and remedies are not aligned.

When supply is disrupted, those differences matter. An upstream supplier may reduce delivery or claim relief. A trader may need to decide how to allocate limited volumes. An industrial user may receive less feedstock but still be required to meet its own delivery commitments.

The result is a mismatch.

Losses move along the chain and tend to settle with the party whose obligations remain fixed even as its inputs are reduced or interrupted.

Where claims are likely to arise

Against that background, disputes are beginning to take shape in a number of areas.

At the upstream level, claims focus on non-delivery or shortfall under long-term contracts, including whether force majeure has been properly invoked and whether mitigation obligations have been met.

At the midstream level, allocation decisions are likely to come under scrutiny. Where supply is constrained, choices about which buyers are supplied—and on what basis—can become contentious. Allegations of diversion or preferential treatment are likely to feature in those disputes.

Further downstream, industrial users such as fertiliser and chemical producers are particularly exposed. These businesses rely on a continuous supply of gas as feedstock. Any reduction in supply can lead to immediate production losses, often measured by lost output or the cost of sourcing replacement supply.

In those situations, the focus is not on general market conditions. It is on whether a specific contractual obligation to supply has been breached.

That is the point at which loss becomes a claim.

A brief note on construction

The same pressures are now being felt in construction and infrastructure.

Recent industry survey data reported by MEED suggests that contractors are dealing less with widespread shutdowns and more with ongoing disruption. The main issues cited are transport and logistics delays (around 36%), a slowdown in new work (30%), and site shutdowns or cancellations (15%), alongside increasing pressure on working capital.

Projects are continuing, but with tighter margins and less certainty around delivery. Materials are taking longer to arrive, sequencing is affected, and assumptions built into contracts no longer hold in the same way.

Claims are beginning to follow. These include delay, disruption and prolongation claims, as well as attempts to recover increased costs.

Force majeure will assist in some cases, particularly on time. It is less helpful on cost. Whether additional amounts can be recovered will usually depend on specific contractual provisions—such as variations, changes in law or identifiable upstream failures—rather than the broader market environment.

As a result, construction disputes often reflect issues that originate earlier in the supply chain, even if they are most visible at the project level.

From market disruption to legal disputes

What is developing is not just a rise in disputes, but a change in their character.

The current wave is less about delay in the abstract and more about failures to deliver agreed volumes, decisions taken when supply is limited and whether reasonable steps were taken to maintain performance.

These disputes depend heavily on documents and on the decisions made at the time. They are also capable of supporting significant claims, particularly where replacement supply has to be sourced at higher prices or production has been interrupted.

For those involved in distressed situations, this matters because such claims may represent a material source of recovery, particularly where they can be directed at upstream counterparties with the ability to pay.

The changing approach to disputes

The way these situations are being approached is also shifting.

Rather than waiting for disputes to crystallize fully, parties are starting to assess potential claims earlier. That includes looking at the contractual basis for a claim, the evidence available on mitigation and allocation decisions

and the identity and location of counterparties and their assets.

This analysis often sits alongside broader commercial decisions about how to respond to pressure on the business.

It is increasingly common for external capital providers to be involved at this stage. Their role is not limited to funding. In many cases, they are asked to assess the claim itself—its merits, its enforceability and the practical route to recovery—before formal steps are taken.

This reflects a change in how disputes are treated: They are not simply legal issues that arise at the end of a process. They are part of how risk is managed and, where appropriate, shared.

Conclusion

Disruption linked to the current conflict is already affecting how contracts are performed across multiple sectors.

The most significant disputes are unlikely to come from general cost increases. They are more likely to arise where a party can point to a failure to perform a specific contractual obligation—whether in relation to delivery, allocation or the steps taken to maintain supply.

Those claims do not sit evenly across the market. They arise at identifiable points in the supply chain, often upstream of where the economic impact is most visible.

For businesses dealing with these pressures, the task is to identify where losses can be attributed to contractual failures and to decide how those claims should be pursued.

That requires a combination of legal analysis and commercial judgment, applied early and with a clear view of how recovery will be achieved.