The Hormuz Effect: What Middle East Disruption Means for Your Project

Introduction

The conflict in the Middle East has heightened the risk of disruption to key maritime routes in the Gulf, particularly the Strait of Hormuz, a critical artery for global energy and trade through which a significant portion of the world’s oil and liquefied natural gas is transported. The impact on the construction sector has already been felt in Singapore and may be broadly divided into two categories: (i) first, delay arising from disruption to shipping routes, supply chains and logistics; and (ii) second, cost escalation, particularly in relation to materials, freight and insurance.

We examine how these developments engage force majeure and price escalation provisions in standard form construction contracts used in Singapore, as well as the doctrine of frustration. 

A) Force Majeure

Force majeure is not a freestanding doctrine under Singapore law but operates only as a matter of contract. If a contract does not have a force majeure clause, then force majeure has no application. Its scope and effect depend on the wording of the clause agreed between the parties. Whether a force majeure clause is engaged is therefore a question of construction — whether the event falls within the clause, and what consequences follow.

The essence of a force majeure event is a radical event that prevents the performance of the relevant obligation (and not merely making it more onerous), and which is due to circumstances beyond the parties’ control.

Crucially, the party relying on the clause must establish a clear causal link between the force majeure event and its inability to perform. It is not sufficient that the force majeure event exists in the background – it must be the operative cause of the inability to performance.

The party must also comply with any contractual requirements, including notice and mitigation. Failure to do so may defeat a claim for force majeure altogether. This has been affirmed by the Singapore courts, which have held that a contractor’s entitlement to an extension of time does not arise unless the contractual notice requirements are satisfied.

Against this backdrop, we discuss below the force majeure provisions in three commonly used standard form construction contracts in Singapore: the REDAS Design and Build Conditions of Main Contract (4th Ed, 2022) (“REDAS“); the Singapore Institute of Architects Articles and Conditions of Building Contract (Lump Sum Contract) (2016) (“SIA Conditions“); and the Public Sector Standard Conditions of Contract for Construction Works (2020) (“PSSCOC“).

(i) The Relevant Provisions

 Under the REDAS form:

1. 1. Clause 16.1 provides that the contractor may apply for an extension of time where delay is caused by, among other things, “a force majeure event as defined in Clause 18.2“.
   2. Clause 18.2, titled “Definition of Force Majeure Event“, sets out a list of qualifying events, including, among other things, “war, hostilities, insurgency, terrorism, civil commotion or riots” and “embargoes affecting directly the Works“.
   3. Clause 16.2.1 provides that it is a condition precedent to an extension of time that “the Contractor’s application for extension of time shall be made within 28 days after the cause of any delay has arisen together with full and detailed particulars“.

Under the SIA Conditions:

1. 1. Clause 23(1)(b) provides that time may be extended where the delay was caused by one of the specified events set out in Clauses 23(2)(a) to (q). The Clause also explicitly requires the contractor to have “acted with due diligence and… taken all reasonable steps to avoid or reduce any delay in completion“.

1. 2. The specified events entitling a contractor to an extension of time include both “Force Majeure” as a general category and specific events such as:

• • • “war, hostilities, insurgency, terrorism, civil commotion, or riots” (Clause 23(2)(d));
    • “embargoes (whether domestic or foreign) affecting any of the trades employed upon the Works or in preparation, manufacture or transportation of goods or materials required for the Works” (Clause 23(2)(e)); and
    • “the shortage of good or materials which shall not reasonably have been foreseen at the date of the Contract resulting from domestic or foreign government actions, embargoes, or regulations notwithstanding the Contractor’s readiness by himself or his sub-contractor pay a reasonable price” (Clause 23(2)(m)).

1. 3. Clause 23(3)(a) provides that the contractor must notify the Architect “within 28 days of any event… which he shall consider as entitling him to an extension of time“, which is expressly a condition precedent to any entitlement to extension of time. The notice “shall include a sufficient explanation of the reasons why delay to completion shall result” (Clause 23(3)(c)).

Under the PSSCOC form:

1. 1. Clause 14.2(a) provides that an extension of time may be granted where delay is caused by “an event which is beyond the Contractor’s reasonable control (a force majeure event)“.
   2. Notably, Clause 25.2(a) states that “war and hostilities…, invasion, act of foreign enemies” are only considered “excepted risks” entitling the contractor to an extension of time “insofar as they occur in Singapore and directly affect the execution of the Works“. Similarly, Clause 14.2(c) states that “embargoes” would only entitle the contractor to an extension of time “if the… embargo causing the delay is in Singapore.”
   3. Clause 14.3(1) provides that if the contractor considers that progress or completion of the Works has been or will be delayed by any event under Clause 14.2, the contractor must promptly notify the Superintending Officer in writing, and in any event within 60 days of the event. In the same notice, or no later than within that 60-day period, the contractor must provide: (i) the relevant Contract references; (ii) the reasons for the delay; (iii) the length of the delay and the extension of time required; and (iv) the effect of the event on the accepted programme. The notice(s) are a condition precedent to an extension of time.

(ii) Analysis 

While the drafting differs, there are some themes that are common across all three standard form contracts.

Extension of Time Regime: Under all three standard form contracts, a force majeure event – even if established – would typically entitle the contractor to only an extension of time, but not additional costs. Nevertheless, there are avenues which a contractor could explore to seek reliefs.

Definition of Force Majeure: While the Strait of Hormuz conflict has affected construction projects globally, the precise characterisation of any force majeure event will necessarily depend on the specific facts and circumstances of each project.  For example, the relevant force majeure event could be characterized as “war”; a de facto “embargo”; or as a “shortage of goods or materials” that was not reasonably foreseen. 

The characterisation of the relevant force majeure event should be informed by the relevant facts, as well as by the scope of the force majeure clause in question:

1. REDAS: Under the REDAS, force majeure is defined by reference to specified events, including “war” and “hostilities” (Clause 18.2). Employers are likely to contend that “war” should be construed narrowly to mean only a declaration of war involving Singapore, such that a foreign war may fall outside the clause. A broader interpretation may nevertheless be arguable where the contract contemplates materials being shipped through the Strait of Hormuz or sourced from the Middle East.

   It is also unclear whether the present situation constitutes an “embargo[] affecting directly the Works“, as there is no formal legal prohibition on trade or transit through the Strait; rather, disruption has arisen from physical danger, hostilities, and insurance and security constraints rendering transit impracticable rather than unlawful.

2. SIA Conditions: Although the SIA Conditions do not define force majeure, Clause 23(2) expressly includes “war” and “embargoes” as extension‑of‑time events. As with REDAS, it is uncertain whether “war” encompasses a conflict not involving Singapore, or whether the present situation amounts to an “embargo“.

   Notably, Clause 23(2)(m) separately entitles the contractor to an extension of time for shortages of goods or materials resulting from foreign government actions or embargoes, provided the shortage was not reasonably foreseeable and the contractor is willing to pay a reasonable price.

3. PSSCOC: The PSSCOC allows extensions of time for events beyond the contractor’s reasonable control, but the wording of Clauses 25.2(a) and 14.2(c) (described above) indicates that war or embargoes will entitle the contractor to relief only where they occur in Singapore.

Causation: It is not enough to show that the Middle East conflict falls within the definition of force majeure. All three standard form contracts contain language that require the contractor to prove that the force majeure event directly “caused” the delay (see Clause 16.1 of the REDAS, Clause 14.2(a) of the PSSCOC, and Clause 23(1) of the SIA Conditions).

In practical terms, this requires evidence that the force majeure event has prevented the contractor from carrying out the works in accordance with the programme. It is likely insufficient to rely on general market conditions or increased costs which merely make performance more expensive or onerous. This was illustrated in Glahe International Expo AG v ACS Computer Pte Ltd [1999] 1 SLR(R) 945, where the Singapore Court of Appeal held that the imposition of a 15% customs duty did not constitute a force majeure event because it did not prevent performance but merely increased the cost of performance. 

The strength of the claim will depend on the contractual and factual context. Where the contract contemplates a specific method of performance or supply route that is directly disrupted, the causal link is more readily established, as the event can be shown to have interfered with the agreed means of carrying out the works. By contrast, where the contract allows flexibility in sourcing or logistics, or where reasonable alternatives are available, it may be more difficult to demonstrate that the event has caused delay, as opposed to merely increasing cost or inconvenience. In such cases, establishing a sufficiently direct impact on completion may be more challenging.

Mitigation: Both the PSSCOC and the SIA Conditions expressly require that the contractor take steps to mitigate the effects of any delay arising from the force majeure event (PSSCOC Clause 14.2(a); SIA Clause 23(1)). This underscores that a contractor must not only identify a qualifying event but also demonstrate that it has taken reasonable steps to mitigate its effects. In practical terms, this may include exploring alternative sources of materials, adjusting construction sequencing, or adopting different logistics arrangements where feasible. A failure to take such steps may undermine any entitlement to relief.

Notice: The REDAS, SIA Conditions, and PSSCOC all contain notice requirements, which are conditions precedent to an extension of time.

B) Price Adjustment Provisions 

As discussed above, the relevant extension of time mechanisms do not typically address the increase in costs arising from force majeure events. To this end, contractors may look to price adjustment provisions as a mechanism for adjusting the contract sum. 

All three standard form contracts adopt a similar approach. Each provides, to varying degrees, an optional and limited price fluctuation mechanism for adjusting the contract sum by reference to changes in material prices. Under the REDAS (Clause 34), PSSCOC (Clause 33.1) and SIA Conditions (Clause 40), adjustments are made by reference to specified materials, typically identified in an appendix, and calculated using published indices or pre-agreed base dates: 

1. Under the REDAS (Clause 34), the contract sum “shall be adjusted upwards or downwards to take into account any rise or fall… in the market price of each of the materials specified… used in the Permanent Works“, with reference to prices prevailing at a stipulated Base Date and those at the date of delivery, based on prices “published… by the recognised Relevant Authority“.
   
   
2. Under the PSSCOC (Clause 33.1), the contract sum “shall be adjusted upwards or downwards to take account of any rise or fall in material prices… calculated based on the fluctuations in the material price indices“, with such indices published by the Building and Construction Authority or other recognised bodies, and applied to materials specified in the Appendix.
3. Under the SIA Conditions (Clause 40), the contractor is entitled to be paid or to credit the employer for the “difference between the contracted prices… at the date of delivery and… at the stipulated Base Date“, with such prices derived from published sources and applied to specified materials required for the completion of the Works. 

However, it should be noted that these mechanisms apply only where expressly incorporated and agreed upon, and only to specific materials agreed between the parties. They do not operate as a general repricing mechanism and are not based on the contractor’s actual procurement costs. In practice, material price indices are typically published monthly; may be subject to a lag; and may not capture sudden price shocks or wider cost increases such as freight and logistics. As a result, they may not fully capture sudden or short-term price shocks arising from geopolitical events and may not reflect wider cost increases such as freight or logistics. Therefore, while the standard form contracts recognise and partially mitigate the risks of material price volatility, the risk of broader cost increases remains largely borne by the contractor.

C) Doctrine of Frustration 

The doctrine of frustration operates independently of the parties’ agreement. Unlike force majeure, which depends on contractual drafting, frustration is a rule of law which may discharge a contract where supervening events that could not have been reasonably foreseeable by the parties fundamentally alter the nature of the contractual obligations. Where established, the contract is automatically discharged, and the parties are released from further performance, subject to the statutory adjustment regime under the Frustrated Contracts Act 1959.

The threshold under Singapore law to prove frustration is high. It is not sufficient that performance has become more difficult or more expensive. The event must render performance impossible, illegal, or radically different from that which was originally contemplated. In practice, this arises only in extreme situations — for example, where legal or physical constraints prevent the contractor from carrying out the works altogether, such as prohibitions on the export of essential materials or the closure of critical routes with no viable alternatives.

This distinction between impossibility and commercial hardship is critical. As a general rule, disruption arising from geopolitical events, including increased material costs, higher freight charges, or delays caused by rerouting, will not, without more, meet the threshold of frustration.

However, the analysis becomes more nuanced where the contract specifies a particular mode or basis of performance. In Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2014] 3 SLR 857, the Indonesian sand ban frustrated the contract because both parties contemplated Indonesian sand as the source material, and the ban deprived the contract of that underlying basis. By contrast, in Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93, the closure of the Suez Canal did not frustrate the contract for shipment, as shipment remained possible via an alternative route around the Cape of Good Hope, albeit at greater cost and delay, and the contract did not require performance via a specific route.

In the context of the Middle East conflict, whether frustration arises ultimately turns on the proper construction of the contract, and the relevant facts. Where the impact is limited to general cost escalation, this will not suffice. However, where the contract is premised on a specific source, route, or method of performance which is rendered unavailable by the conflict with no viable alternative, it may be arguable that the obligation has been fundamentally altered, giving rise to frustration.

D) What Can the Stakeholders Do

Against this backdrop, contractors and employers could take proactive steps to manage Middle East-related risks.  In ongoing projects, contractors may want to:

1. 1. audit key project supply chains to identify potential vulnerabilities and stress points impacted by the conflict;
   2. gather and maintain clear evidence showing how the conflict has directly caused delay, not merely increased costs;
   3. comply strictly with procedural requirements, particularly notice provisions framed as conditions precedent;
   4. issue timely and, where appropriate, pre-emptive notices of force majeure;
   5. take early steps to mitigate delay, including exploring alternative sourcing or logistics arrangements;
   6. consider whether price fluctuation provisions (if incorporated) may be engaged; and
   7. where cost recovery is unavailable, recognise that an entitlement to extension of time without costs may still provide commercial leverage where timely completion is critical.

Employers may want to:

1. 1. recognise that standard form contracts are generally time-focused, not cost-compensatory;
   2. scrutinise whether the contractor has established causation, mitigation, and compliance with notice requirements;
   3. distinguish between project-specific delay and general market disruption; and
   4. resist attempts to convert delay claims into cost claims absent contractual basis.

For future contracts, the parties could consider:

1. 1. Express risk allocation for geopolitical disruption: including disruption arising from conflicts in the Middle East. This may include incorporating bespoke clauses (for example, modelled after COVID-19 provisions in the PSSCOC) which define relevant events (e.g. war, sanctions, route closures).
   2. Enhanced fluctuation mechanisms: expand beyond specified materials to include freight, logistics and supply chain costs, where appropriate; and
   3. Clarity on performance assumption: specify (or deliberately avoid specifying) particular sources, routes, or methods of performance, depending on whether flexibility or certainty is preferred. This will directly affect the likelihood of frustration.

Given the evolving nature of these risks, parties should consider reviewing both their existing contracts and future drafting strategies to ensure their positions are adequately protected.

For further queries, please feel free to contact our team set out on this page.

Contribution Note:

This Legal Update is contributed by Sim Chee Siong and Cai Xiaohan, with the assistance of Senior Associates Jerry Wang of Rajah & Tann Singapore LLP.

For regional Construction, Infrastructure & Projects matters, please see Rajah & Tann Asia’s Construction, Infrastructure & Projects for more information.