Middle East geopolitical tensions: Key risk considerations for construction and major projects

Escalating geopolitical tensions in the Middle East are creating heightened risks across supply chains, logistics, insurance markets and workforce management. For construction contracts and major infrastructure projects, even indirect disruption can trigger force majeure claims, delay risks, cost escalation and compliance challenges.

While the direct impact on Australian projects may initially appear remote, the indirect contractual and operational consequences can be significant.

We have developed a brief checklist of issues project owners, contractors, and consultants should be actively reviewing.

Global shipping and freight markets are particularly sensitive to instability in the Middle East. The Strait of Hormuz presently remains ‘closed’, disrupting 20% of the world’s oil and gas transport along with other key materials, with no clear timeline for when this issue is likely to pass.

Recommended actions:

• map critical supply chain dependencies (manufacturers, component suppliers, freight corridors);
• identify single-source or high-risk suppliers;
• confirm logistics provider contingency planning;
• review warehousing capacity and security arrangements;
• consider early procurement or strategic stockpiling of long-lead items in secure locations;
• assess price escalation exposure.

Many construction contracts contain strict notice and time-bar provisions. In our experience the most common issue is not the lack of an entitlement – but the loss of entitlements through failures to comply with strict notice regimes.

Immediate priorities

Review force majeure and time and progress clauses. Consider whether geopolitical escalation or war may trigger:

• Force majeure alleviation;
• Suspension rights;
• Extension of time (EOT) rights;
• Material adverse change clauses.

Issue protective notices early:

• Even if delay has not yet crystallised or impact not yet felt.
• Preserve entitlement to EOT and cost relief.

Mitigation obligations:

• Document steps taken to source alternatives and minimise delay.

Consider:

• Volatility in fuel, steel and shipping costs;
• Counterparty solvency risk (particularly where projects rely on international suppliers);
• Foreign exchange exposure; and
• The extent to which financial risk can be mitigated with suppliers and/or passed through to customers (review escalation/price adjustment mechanisms in contract documents).

The primary obligation to ensure, so far as is reasonably practicable, the health and safety of workers remains unchanged.

Key considerations:

• Travel risk management – Review policies for any personnel travelling internationally (including transit hubs in affected regions);
• Remote workers and expatriate staff – Confirm monitoring, communication and evacuation protocols;
• Heightened threat environments – Consider security assessments for projects involving imported plant, port facilities or sensitive infrastructure;
• Contractor management – Ensure subcontractors have updated risk assessments and emergency response plans;
• Psychosocial hazards – Monitor worker anxiety or stress arising from global instability, particularly where employees have family connections in affected regions; and
• Governance – Boards and officers should ensure due diligence systems are actively reviewing emerging geopolitical risks and documenting responsive measures.

Where projects rely on specialist equipment or long-lead items sourced from or in transit through the Middle East, contractors should be actively reviewing their insurance arrangements to ensure strict compliance with policy requirements.

Insurance cover review:

• Property, contract works and marine cargo and goods in-transit insurance policies;
• Disruption cover.

Notification obligations:

• Early engagement with brokers;
• Prompt notification of circumstances that may give rise to claims (not just actual loss).

Failure to comply strictly with policy notification requirements may impact coverage.

In periods of geopolitical instability:

• Increase the cadence of project risk reviews;
• Ensure board and executive briefings document consideration of emerging risks;
• Maintain contemporaneous records of delay causation;
• Keep a central register of issued contractual notices to suppliers and clients.

While the immediate operational impact in Australia may be indirect, the legal and commercial consequences of global disruption can arise quickly and unexpectedly. Early contractual review, proactive notice management, and documented mitigation are critical to preserving a party’s commercial position.

The above is general in nature and is not legal advice tailored to your specific situation. DMAW Lawyers regularly advise on the above project issues, including those associated with force majeure, notice requirements, and time and cost. Please contact us if you have a particular issue or contract you would like to discuss, and we can provide you with tailored legal advice to suit your commercial needs.

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.

Author: Ben Millman

Position: Associate

Practice: Disputes

Author: Chloe Katzer

Position: Lawyer

Practice: Transactions

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