Steel, Sand, and Sovereignty: Navigating Construction Contracts Amidst the 2026 Gulf Conflict

Introduction: Infrastructure Under Geopolitical Stress

Infrastructure development in the Gulf Cooperation Council (GCC) has historically operated within a complex interplay of geopolitics, energy economics, and global supply chains. Yet the 2026 escalation involving Iran, the GCC states, the United States, and Israel has introduced a new and acute level of contractual uncertainty. The geopolitical landscape has shifted from the "just-in-time" efficiency of the early 2020s to a "just-in-case" survivalist framework.

The Strait of Hormuz, through which approximately 20–22% of the world’s seaborne oil and a significant proportion of construction materials transit, has become a strategic chokepoint. Disruptions to maritime shipping, heightened naval patrols, and war-risk exclusions by insurers have already begun to ripple through steel supply chains, aluminium extrusion markets, and specialised plant procurement.

For construction projects in the United Arab Emirates and Saudi Arabia, these developments do not remain abstract geopolitical events—they manifest directly as:

• Delayed delivery of structural steel and mechanical plant.

• Rapid escalation of war-risk insurance premiums.

• Increased security protocols at project sites due to missile and drone threats.

• Shipping reroutes that extend lead times by weeks or months.

Under international construction contracts—particularly the FIDIC Red Book 1999 and the FIDIC Conditions of Contract 2017—these events raise critical questions:

• Do such disruptions constitute Force Majeure or Exceptional Events?

• Are contractors entitled to Extension of Time (EOT) only, or both time and cost?

• At what point does performance become legally impossible, triggering contractual release?

From the vantage point of a contract administrator, the answers lie in a careful reading of contractual risk allocation, the governing civil law framework of the GCC, and lessons learned during the COVID-19 pandemic disruption.

I. Strategic Supply Chain Disruption: The Strait of Hormuz Effect

The Strait of Hormuz is the maritime artery connecting Gulf ports to global trade. For the GCC construction sector, its disruption creates cascading consequences:

a. Steel and Structural Components

Structural steel used in major Gulf infrastructure projects is sourced from:

• China

• India

• Turkey

• South Korea

• European mills

With shipping insurers applying war-risk surcharges, freight rates have surged dramatically. In some cases:

• Typical steel delivery schedules could shift from 6–8 weeks to 10–15 weeks depending on the interplay between insurance premiums and change of shipping route.

• Letters of credit now require additional security provisions.

• Suppliers demand price escalation clauses to offset volatility.

b. Aluminium and Facade Systems

The Gulf façade industry relies heavily on specialised aluminium extrusion dies and coatings sourced internationally. Maritime delays affect:

• Curtain wall systems

• Architectural aluminium profiles

• Structural glazing assemblies

For high-rise developments in Dubai, Riyadh, and NEOM, these components may sit on the critical path of project programmes.

c. Specialised Plant and Equipment

Major projects depend on imported machinery such as:

• Tunnel boring machines

• HVAC chillers

• Turbine equipment

• Electrical transformers

Shipping reroutes around the Cape of Good Hope instead of the Gulf passage can add weeks to transit times.

In contractual terms, such delays immediately raise questions under FIDIC Force Majeure / Exceptional Event provisions.

II. Employer’s Risks: War, Hostilities, and Invasion

Under the FIDIC Red Book 1999, risk allocation relating to armed conflict is primarily addressed in Sub-Clause 17.3 and 17.4.

Sub-Clause 17.3 – Employer’s Risks

Employer’s risks include damage resulting from:

• War

• Hostilities

• Invasion

• Act of foreign enemies

• Rebellion or revolution

In GCC arbitration practice, the significance of this clause cannot be overstated.

If project disruption results from regional military activity, liability for physical damage to the works typically rests with the Employer, not the contractor.

Examples include:

• Missile interception debris damaging site structures

• Shockwave damage to glazing systems

• Drone strike incidents near infrastructure facilities

Sub-Clause 17.4 – Consequences

Where Employer’s Risks materialise, the contractor is generally entitled to:

• Extension of Time

• Payment of Cost

This differs markedly from other Force Majeure scenarios where cost recovery may be restricted.

In arbitration, the key evidentiary question becomes causation:

Did the war event directly cause the delay or damage?

If so, the contractor’s entitlement becomes relatively strong.

III. Force Majeure vs Exceptional Events

The FIDIC 1999 and FIDIC 2017 editions approach extraordinary disruptions differently.

FIDIC 1999 – Sub-Clause 19.1: Force Majeure

Force Majeure must satisfy four conditions:

1. Beyond the party’s control

2. Unforeseeable

3. Unavoidable

4. Not attributable to either party

The current Gulf conflict arguably satisfies all four.

Beyond Control

Contractors cannot control geopolitical conflict or maritime security restrictions.

Unforeseeable

While geopolitical tensions have long existed, armed escalation disrupting the Strait of Hormuz constitutes a material escalation beyond ordinary risk.

Unavoidable

Even alternative logistics routes may be blocked by insurance restrictions or naval security protocols.

Not Attributable

Neither employer nor contractor can reasonably be held responsible for regional military conflict.

Thus, under Sub-Clause 19.1, the conflict would typically qualify as Force Majeure.

FIDIC 2017 – Sub-Clause 18.1: Exceptional Events

The 2017 suite replaced the term Force Majeure with Exceptional Events.

This change reflects modern legal drafting trends, emphasising precise risk allocation.

Examples explicitly listed include:

• War

• Hostilities

• Terrorism

• Military operations

Accordingly, the current Gulf conflict fits squarely within the contractual definition.

IV. Consequences: Extension of Time vs Cost

Under both FIDIC editions, consequences depend on the nature of the event.

Sub-Clause 19.4 (1999) / 18.4 (2017)

Contractors affected by Force Majeure or Exceptional Events may claim:

• Extension of Time (EOT)

• Cost, but only for certain categories of events.

Critically:

Event Type	EOT	Cost
War / Hostilities	Yes	Yes
Natural disasters	Yes	Often No
Government actions	Case dependent	Case dependent

This distinction is fundamental in GCC disputes.

For instance:

A typhoon disrupting shipping might grant EOT only. But naval conflict closing shipping routes could justify EOT plus cost. Cost claims may include:

• Standby labour

• Equipment idle costs

• Re-mobilisation

• Escalated material prices

V. Release from Performance: When Contracts Become Impossible

In extreme circumstances, the contract may become impossible to perform.

Under Sub-Clause 19.7 (1999) or 18.6 (2017), either party may terminate if:

• The Force Majeure prevents performance for a prolonged period.

• Continued execution becomes impossible or unlawful.

This interacts directly with GCC civil law doctrines.

UAE Civil Code – Article 273

Article 273 provides that if force majeure renders performance impossible, the corresponding obligation is extinguished.

This reflects the civil law doctrine of frustration of purpose.

Saudi Civil Transactions Law

Similarly, Saudi law recognises:

• Impossibility

• Excessive hardship

Where war conditions make construction illegal or physically impossible, the contract may be dissolved. However, arbitrators typically apply a high threshold before declaring impossibility. Logistical difficulty alone rarely suffices.

VI. Physical Security Risks to Construction Sites

The 2026 conflict introduces a dimension rarely contemplated in ordinary construction risk planning: direct military threats to project sites.

Potential impacts include:

1. Mandatory Security Protocols

Authorities in the UAE and Saudi Arabia may impose:

• Radar monitoring zones

• Evacuation drills

• Work stoppages during threat alerts

Such directives could trigger claims under:

• Variation

• Change in Law

• Exceptional Event

2. Temporary Site Shutdowns

Air defence engagements near infrastructure corridors may require:

• Evacuation of personnel

• Shutdown of cranes and tower lifts

• Suspension of concrete pours

These disruptions are typically classified as prevention, not merely hindrance.

VII. The COVID-19 Corollary

The construction industry gained profound contractual experience during the 2020–2022 pandemic.

Yet the current conflict differs in important ways.

Prevention vs Hindrance

During COVID-19:

• Many projects continued operating under restrictions.

• Courts often viewed the pandemic as hindrance, not impossibility.

In contrast, wartime disruptions may create true prevention, where:

• Shipping lanes close completely.

• Government orders halt construction activity.

Prevention strengthens claims for Force Majeure relief.

Data-Driven Claims: Lessons from Pandemic Disputes

COVID-era arbitration established a critical lesson:

Claims succeed only when supported by granular contemporaneous data.

Contractors learned to track:

• Labour productivity losses

• Logistics delays

• Supply chain disruptions

These same protocols must now be applied to wartime impacts.

Essential documentation includes:

• Shipping notices

• Insurance premium increases

• supplier delay notices

• revised logistics routes

• programme impact analyses

Without such data, Force Majeure claims risk failure.

VIII. Governing Law and Lex Loci Solutionis

Another critical legal concept in international arbitration is lex loci solutionis—the law of the place where contractual obligations are performed.

In GCC infrastructure contracts:

• Governing law may be UAE law, Saudi law, or occasionally English law.

• However, mandatory local laws still influence performance.

For instance:

If the UAE government orders a temporary shutdown of coastal industrial zones, contractors cannot legally continue work.

This creates a strong argument for:

• Exceptional Event relief

• Potential contract suspension

IX. Quantum Meruit and Post-Termination Compensation

If contracts terminate due to impossibility, the question arises:

How are contractors compensated?

FIDIC typically allows recovery for:

• Work executed

• Demobilisation costs

• removal of equipment

• materials ordered but unused

This recovery resembles the legal principle of quantum meruit—payment for the value of work performed. However, profit on unexecuted work is rarely recoverable.

X. Boardroom Imperatives for Navigating Wartime Risk

In light of the evolving Gulf conflict, project stakeholders should adopt several strategic measures.

1. Strict Compliance with Notice Requirements

The "Notice" Trap: Under FIDIC 2017, the 28-day notice period for an "Exceptional Event" is a condition precedent. Failure to notify the Engineer within this window can result in a total loss of claim rights.

Under FIDIC:

• Notice must typically be issued within 28 days of becoming aware of the event.

Failure to provide timely notice can bar claims entirely.

2. Implement Wartime Supply Chain Monitoring

Contractors should establish real-time monitoring of:

• Shipping routes

• supplier manufacturing schedules

• war-risk insurance premiums

This data supports disruption claims.

Mitigation of Loss: Even in a war zone, the Contractor has a duty to mitigate. Can materials be sourced via the Red Sea or overland through Jordan/Saudi? If a "reasonable" alternative exists, the FM claim may fail.

3. Reassess Insurance Coverage

·  Conduct an insurance Gap Analysis: Review your Construction All Risks (CAR) policy. Most exclude "War" but may cover "Terrorism" or "Riot." The distinction in 2026 is often blurred; legal definitions will determine who pays for site damage.

·  Projects must review:

• War-risk exclusions

• marine cargo coverage

• delay in start-up insurance

Failure to update coverage may expose parties to significant uninsured losses.

4. Invoke Hardship (Imprévision) Where Appropriate

Many GCC civil law systems recognise the doctrine of imprévision (French law (Art. 1195 Civil Code), which allows courts or arbitral tribunals to rebalance contracts where circumstances become excessively onerous.

This doctrine may allow:

• price adjustments

• contract renegotiation

without terminating the project.

5. Consider Contractual Renegotiation

Finally, the most commercially sensible solution may be proactive renegotiation.

Parties should consider:

• material escalation mechanisms

• shared risk logistics solutions

• revised programme milestones

Litigation rarely preserves project relationships.

6. Termination for Prolonged FM: 

If the conflict prevents work for a continuous period of 84 days (under FIDIC Sub-Clause 19.6), either party may terminate. This is the "Nuclear Option" that requires a deep cost-benefit analysis of the "Termination Amount."

Conclusion: Contractual Resilience in an Uncertain Gulf

The 2026 Gulf conflict underscores a perennial truth in international construction law:

Infrastructure does not exist in isolation from geopolitics.  The disruption of the Strait of Hormuz, escalation of war-risk insurance, and emerging physical threats to project sites create a complex matrix of contractual risks.

Within the FIDIC framework, these events generally qualify as Force Majeure or Exceptional Events, potentially entitling contractors to both Extension of Time and Cost—particularly where war or hostilities are involved.

Yet successful claims will depend not merely on legal doctrine, but on:

• meticulous documentation

• timely notices

• strategic risk management

Ultimately, the most resilient projects will be those where parties recognise that steel and sand are inseparable from sovereignty, and where contracts are interpreted not only through clauses and statutes, but through the realities of a rapidly evolving geopolitical landscape.