Force Majeure and the Iran Conflict

What Esperance Businesses Need to Know About Their Contracts

Diesel prices have surged. Fertiliser costs have risen sharply. Freight rates are climbing. Some suppliers have started issuing force majeure notices, stepping back from contractual commitments on the basis that the Iran conflict has prevented them from delivering.

Whether your business relies on fuel for farm machinery or road transport, fertiliser for the approaching cropping season, building materials for a construction project, or any other input affected by the current disruption, those notices raise immediate questions. Is the notice valid? What are your rights? And what should you do next?

This article explains the legal framework and the practical steps that matter.

What is force majeure?

Force majeure is a contractual mechanism. It is not a general legal right, and Australian law does not imply it into contracts. It must be expressly included as a clause.

A force majeure clause allows a party to suspend or be excused from performance when an extraordinary event beyond its reasonable control prevents it from meeting its obligations. War, armed conflict, government action, extreme weather, and trade embargoes are common examples.

The critical word is “prevents.” Force majeure does not apply simply because performance has become more expensive or less profitable. The event must make performance impossible or, depending on the wording of the clause, illegal.

How is force majeure different from frustration?

Force majeure is a creature of contract and exists only where the parties have agreed to include it.

Frustration is a separate doctrine that arises by operation of law. A contract is frustrated when, without fault of either party, performance becomes radically different from what was originally agreed.

The consequences differ. A force majeure clause typically suspends obligations for the duration of the event, or provides a right to terminate. The contract survives. Frustration, by contrast, terminates the contract automatically, discharging both parties from future obligations.

Courts are reluctant to find frustration. If the parties could have included a term to deal with the risk but chose not to, the court will generally hold them to the contract.

Why the Iran conflict is different from COVID

Armed conflict and war are among the most traditional force majeure triggers. Most well-drafted clauses expressly cover these events. To that extent, the threshold question of whether the current conflict falls within the scope of a force majeure clause is easier to satisfy than it was during the pandemic, when many clauses did not contemplate health emergencies.

However, satisfying the threshold question is only the beginning. A party invoking force majeure must also demonstrate that the event has actually prevented performance. That is where most disputes will turn.

Prevention versus commercial inconvenience

This is the distinction that matters most. Global fuel and fertiliser markets have not ceased to function. Product continues to trade internationally. Some buyers in Australia have continued to secure supply from alternative sources.

Where a supplier can still obtain product but at a higher price, the question is whether the inability to perform reflects genuine prevention or a commercial decision not to absorb the cost. A court will look closely at that distinction.

For Esperance businesses, this question arises across multiple sectors. A fertiliser supplier that declares force majeure while competitors continue to deliver raises obvious questions about whether the disruption truly prevented performance or whether it was a commercial choice. The same applies to a building materials supplier that stops deliveries on a construction contract, or a fuel distributor that reduces allocations despite product still being available in the market.

Foreseeability

Courts will examine whether the disruption falls within the ordinary risk profile of the business. Geopolitical volatility in the Middle East, disruptions through the Strait of Hormuz, and periodic withdrawal of supply from major exporting nations are not novel events. They are recurring features of the global energy and fertiliser trade.

Where a supplier's business model depends on sourcing product from these regions, a court may conclude that the risk should have been anticipated and managed, rather than relied upon after the fact as a basis for non-performance.

This issue is particularly acute for contracts entered into after the conflict began escalating in early 2026. For those contracts, the conflict is no longer unforeseeable.

The obligation to mitigate

Most force majeure clauses require the party invoking the clause to take reasonable steps to reduce the impact. This is not a passive obligation. The supplier must show that it attempted to source alternative supply, explored different regions, adjusted logistics, and that those efforts were unsuccessful.

Where a supplier has not demonstrably taken those steps, reliance on force majeure is materially weaker. Any reduction in supply must also reflect the actual constraint. A supplier cannot simply withdraw from all contracts; it must demonstrate a direct link between the disruption and the specific volume it is unable to deliver.

The consequences of getting it wrong

A party that ceases performance by relying on a force majeure clause, when the clause does not in fact apply, may be found to have repudiated the contract. That entitles the other party to terminate and claim damages.

On the other side, a party that receives a force majeure notice and accepts it at face value, when the notice is not valid, may inadvertently give up contractual rights that could otherwise have been preserved.

Both sides should seek legal advice before acting on a force majeure notice.

What should you do?

If you hold a contract affected by the current disruption, whether you are on the receiving end of a force majeure notice or considering whether to issue one yourself, there are six practical steps to take.

First, locate and read the contract. The specific wording of the force majeure clause will determine everything. Not all clauses are drafted the same.

Second, review the notice. A valid force majeure notice typically requires the party to identify the specific event, explain how it has prevented performance, and outline the steps being taken to mitigate. A vague or generic notice may not satisfy the contractual requirements.

Third, assess foreseeability. Was the disruption foreseeable when the contract was signed? For contracts entered into before the conflict escalated, the argument for force majeure is stronger. For contracts signed after February 2026, the position is more difficult.

Fourth, consider mitigation. Has the party invoking force majeure shown genuine efforts to source alternative supply? Has it offered to supply even partial volumes?

Fifth, document the impact. Record dates, volumes outstanding, alternative arrangements, and additional costs incurred. Contemporaneous records will be important if the matter proceeds to negotiation or litigation.

Sixth, seek legal advice before accepting a cancellation or variation. Accepting a force majeure notice at face value may give up rights you would otherwise retain.

Why this matters

Force majeure is a necessary contractual protection, but it is not a licence to transfer commercial risk to the other party when market conditions become unfavourable. Where supply continues to exist and markets remain functional, the legal threshold for invoking force majeure remains demanding.

For any Esperance business that relies on supply contracts, whether in agriculture, construction, transport, retail, or services, the lesson from the current disruption is clear: the time to consider force majeure risk is before the contract is signed, not after the disruption occurs.

How Opportuna Legal can help

Opportuna Legal advises businesses and primary producers across the Esperance region and Western Australia on commercial contracts, supply chain risk, and dispute resolution. If you hold a supply contract that is subject to a force majeure claim, if you are considering whether to issue a force majeure notice yourself, or if you are entering into new supply arrangements and want to ensure your contracts are properly drafted, contact Opportuna Legal.

This article is general information only and does not constitute legal advice. Readers should obtain professional advice specific to their circumstances before acting on any of the information contained in this article.

Opportuna Legal

T: 08 6110 3748

E: reception@opportunalegal.com.au

W: opportunalegal.com.au