Key risks for businesses in the Middle East conflict and ways to minimize them

Escalating geopolitical tensions in the Middle East are having a systemic impact on international trade, logistics, financial transactions, and corporate resilience. Restrictions on shipping through strategic routes, disruptions to banking infrastructure, and increasing sanctions pressure are creating a complex set of risks that require companies not only to respond quickly but also to review their legal and financial strategies.

It’s important to note that military action alone does not automatically exempt a party from contractual liability. The terms of the contracts, applicable law, and the actual circumstances of the performance of the obligations are crucial.

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1. Risk of breach of obligations and limited application of force majeure

Disruptions to supply chains and transportation accessibility make it impossible to fulfill contracts on time. However, invoking force majeure requires strict legal justification.

The mere fact of the existence of a conflict is not sufficient grounds; the wording of the contract and evidence of the objective impossibility of performance are decisive.

Key legal criteria for force majeure:

• the circumstance does not depend on the party;
• is unpredictable;
• is insurmountable;
• makes the fulfillment of the obligation objectively impossible (and not just more costly).

Recommendations for business:

• detail force majeure clauses (including military action, sanctions, route blockages);
• record all circumstances that impede execution;
• notify counterparties in a timely manner;
• analyze alternative methods of execution (change of routes, suppliers);
• take into account the specifics of the applicable law (for example, in some jurisdictions, force majeure may be applied more broadly).

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2. Logistics and insurance risks

Restrictions on freedom of navigation and targeted attacks on civilian vessels create increased operational and legal risks, particularly in strategically important straits.

An additional factor is the revision of insurance conditions: insurers either exclude coverage for military risks or significantly increase insurance premiums.

Key business implications:

• rising costs of freight and insurance;
• refusal of insurers to cover losses;
• rerouting and delivery delays;
• an increase in the number of disputes over charter and export contracts.

Practical measures to reduce risk:

• conducting an audit of transportation contracts (including provisions on war risks);
• checking insurance coverage and inclusion of war risk clauses;
• regular assessment of route safety;
• taking into account the jurisdiction of the vessel, flag and beneficiaries;
• inclusion in contracts of provisions on sanctions and the right to refuse performance in the event of a security threat.

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3. Financial and compliance risks

Geopolitical instability affects the resilience of financial infrastructure, leading to potential disruptions in banking systems, payment delays, and increased regulatory oversight.

Companies are facing not so much a complete halt in operations, but rather a slowdown and increased complexity.

Key risks:

• delays in international payments;
• strengthening KYC and compliance procedures;
• increase in operating costs;
• risk of transaction blocking;
• the introduction of new sanctions and export restrictions.

Recommended actions:

• diversification of bank accounts and financial channels;
• use of alternative jurisdictions;
• preparation of document packages for expedited compliance;
• monitoring of sanctions regulation;
• implementation of business continuity plans.

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4. Labor and operational risks

The military conflict also has an impact on human resource management, especially for companies present in the region.

The employer is obliged to ensure safe working conditions regardless of external circumstances.

Business responsibilities:

• Ensuring the physical safety of employees;
• organization of remote work;
• adaptation of corporate procedures to a crisis situation;
• compliance with labor protection requirements.

Practical measures:

• implementation of safety and emergency response protocols;
• restriction of business travel to risk areas;
• regular informing of employees;
• revision of local HR policies;
• preparation for possible compensation payments.

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5. Risk of investment disputes

Government measures in times of crisis – restrictions on capital flows, trade, or access to assets – can lead to investment disputes.

However, the mere fact of economic losses is not sufficient: it is necessary to prove a violation of the state’s international obligations.

Criteria for assessing the prospects of a dispute:

• the existence of an applicable investment agreement;
• fact of violation by the state;
• provability of losses and causation;
• the possibility of enforcement of an arbitral award.

Strategic recommendations:

• conducting preliminary legal analysis;
• recording the consequences of government measures;
• assessment of jurisdictional and sanctions risks;
• taking into account possible protection of the state (force majeure, state of necessity).

Geopolitical crises require businesses to take a comprehensive approach to risk management. In practice, the most effective strategy is not exiting the region, but diversifying the operational, legal, and financial structure.

Companies that proactively adapt their contractual framework, build alternative logistics and financial channels, and implement risk monitoring systems gain a significant advantage in uncertain times.