The ongoing U.S.-Iran conflict is restricting shipping, energy, and payment conditions throughout the Gulf. Construction projects in the Middle East are already experiencing impacts on procurement, scheduling, cash flow, and claims.
When construction clients discuss the U.S.-Iran war, the conversation quickly turns to practical issues. They are less worried about geopolitics and more focused on delayed equipment, changing supplier prices, stricter payment processes, tougher notice requirements, and the chance that a project dispute could end up in arbitration.[1]
The Strait of Hormuz is central to these concerns. Disruptions in this area impact freight, insurance, fuel supplies, industrial inputs, and shipping schedules throughout the region. Recent assessments by the International Energy Agency, UNCTAD, and the International Maritime Organization (IMO) indicate that the conflict has significantly affected energy trade flows and merchant shipping, with ship transits through Hormuz nearly ceasing.[2]
Why the Middle East Construction Market Was Already Under Pressure
This is not happening in a slow market. Construction activity in the region was high before the recent escalation. PwC’s 2025 Middle East survey showed strong expectations for more capital and infrastructure spending. Turner & Townsend reported ongoing cost pressures and labour shortages. They predicted construction costs in Abu Dhabi and Dubai would rise about 5% through 2025. RLB’s Q1 2026 Middle East update warns that even a brief conflict could cause more volatility and selective risk pricing.[3]
The context is important. Major construction disputes rarely begin with a single event. Instead, they often develop from small uncertainties, tight schedules, reliance on procurement, and contracts that do not handle shifting conditions well. This is especially true in the Gulf, where projects often rely on imported materials, specialised systems, cross-border logistics, and tightly managed delivery chains.[4]
Construction Cost Increases Caused by War and Supply Chain Disruption
Cost is the main pressure point. Shipping disruptions and war-risk premiums affect not only the energy market but also freight, fuel, petrochemicals, metals, fertilisers, and other industrial inputs. Construction businesses feel these effects quickly, as shown by shorter quotation periods, longer lead times, conflict surcharges, higher storage costs, and increased transport and insurance charges.[5]
Procurement-intensive projects can face significant challenges. Materials such as steel, aluminium, glass, electrical equipment, MEP systems, finishes, and other long-lead items may all be affected at once. Without a viable contract adjustment mechanism, disputes often arise. Contractors may seek compensation or cost-sharing for exceptional cost increases, while employers may argue that contractors have accepted the fixed-price risk and must absorb additional costs. Resolution usually depends on the applicable law, pricing structure, and specific contract terms, particularly in FIDIC design-build and turnkey projects where risk allocation often favours the employer.[6]
In the UK, courts have historically been slow to relieve a party merely because performance became more expensive or more difficult. Davis Contractors v Fareham UDC remains the classic statement that a contract is not frustrated simply because it has become more onerous.[7] The Suez Canal cases point in the same direction, and more recent decisions such as Tandrin Aviation and Canary Wharf show the same reluctance to rewrite a bargain because market conditions or the wider political environment have deteriorated.[8]
Construction Delays, Critical Path Issues, and Arbitration Risk
After cost, delay is often the next most common area of dispute. From a legal standpoint, the main issue is not the existence of war, sanctions, or shipping disruptions. The key questions are whether the event caused a delay, whether it impacted the critical path, whether the contractor met notice and programme requirements, and whether the contract provides relief for such events.[9]
Analysing these issues is rarely straightforward in Middle East projects because contracts often involve several layers. Employers rely on main contractors, who in turn depend on subcontractors and suppliers. If a transformer, facade package, or MEP component is delayed, it can set off a series of notices, pass-through claims, concurrency arguments, and disputes over who should handle the resulting problems. Aceris Law’s practical notes on delay claims, back-to-back clauses, prolongation, disruption, overheads and profit, and global claims each address different aspects of this challenge. These issues become even more important in markets affected by disruptions caused by war.[10]
English case law follows the same logic. Although these are English authorities rather than Middle East decisions, they are highly relevant because English law continues to influence or govern many construction contracts in the region:
- Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd remains the leading authority on the prevention principle and the relationship between employer‑caused delay, extension‑of‑time machinery, and the circumstances in which time becomes “at large”.
- North Midland Building Ltd v Cyden Homes Ltd confirms that parties may allocate concurrency risk expressly through their contract.
- Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar shows how FIDIC contractual machinery, contractor compliance, and the allocation of site and design risk can shape the outcome long before any tribunal reaches broader arguments about fairness.[11]
War, Sanctions, and Payment Risk in Middle East Construction Projects
Payment and compliance risks must be addressed separately. The ongoing conflict has intensified scrutiny of Iran-associated routing, trade documentation, banking channels, and shipping practices. The April 2025 advisory from the Office of Foreign Assets Control (OFAC) cautions that Iranian networks may employ shadow payment channels, opaque ownership structures, falsified cargo documents, and manipulated vessel data to obscure the true origin and destination of shipments. The advisory further recommends increased diligence concerning certificates of origin from jurisdictions such as the United Arab Emirates when Iranian origin is suspected.[12]
For those involved in these projects, payments are delayed, transfers take longer, and banks and compliance teams require additional information. There is also increased uncertainty about whether goods can be delivered and paid for on time. Authorities continue to focus on the precise wording of contract clauses rather than adopting a broader or more flexible approach. In a UK case, Mamancochet Mining Ltd v Aegis Managing Agency Ltd, the Commercial Court held that the sanctions clause suspended liability only if payment was illegal, not merely because of a sanctions risk.[13] Lamesa Investments Ltd v Cynergy Bank Ltd further underscores the importance of exact contract language and its impact on payment obligations under sanctions.[14]
Recent force majeure cases show a consistent trend. In RTI Ltd v MUR Shipping BV, the court clarified that a reasonable-endeavours clause does not always mean a party must accept non-contractual performance to resolve a force majeure event.[15] Seadrill Ghana Operations Ltd v Tullow Ghana Ltd and Classic Maritime Inc v Limbungan Makmur SDN BHD both emphasise that causation remains important, and that force majeure clauses alone are not enough.[16]
That distinction matters particularly in Middle East projects, where contracts are often governed by English law despite the fact that many jurisdictions in the region remain influenced by civil law traditions. Under English law, relief is usually a matter of contract. In many regional civil law systems, statutory doctrines of force majeure, hardship, impossibility, or exceptional circumstances may also shape the analysis. As commentators have noted, armed conflict may amount to force majeure in principle, but the practical outcome will still turn on contract wording, governing law, notice timing, and the underlying supply chain structure.[17]
The Construction Disputes Most Likely to Lead to Arbitration
Delay and Extension of Time Claims
Delay and extension of time claims are likely to be the most common. Contractors will argue that rerouted shipping, reduced transport capacity, sanctions checks, or government measures delayed critical materials and, with them, the works. Employers will answer that the risk was foreseeable, that alternatives existed, or that the affected item was never on the critical path. In arbitration, the outcome usually depends on contemporaneous records, programme evidence, and expert analysis, not on the scale of the news event itself.
Prolongation, Disruption, and Acceleration
Many projects will continue, but less efficiently and at greater cost. Work may be resequenced. Labour may wait on site for materials or access. Site overheads keep running while productivity falls. Later acceleration may create yet another layer of cost and disagreement. Aceris Law’s practical notes on prolongation, disruption, overheads and profit, and costs of construction arbitration are directly relevant, since these claims are often won or lost on the strength of the contemporaneous record and the quality of the causation analysis.[18]
Price Escalation, Variations, and De-Scoping
Price escalation claims often arise alongside disputes over variations, omissions, and de-scoping. In response to market pressure, employers may revise the design, substitute materials, omit parts of the works, or defer certain elements of the project. Whether that produces an entitlement to additional payment, loss of profit, or simply a repriced scope depends on the contract and governing law. Commentators have made the same point in the context of Clause 13 of the FIDIC Red Book, particularly the need to distinguish a genuine omission from a de-scope later handed to another contractor.[19]
Force Majeure, Hardship, and Liquidated Damages
Force majeure will appear in many notices, but hardship and liquidated damages will sit close behind it. FIDIC’s own guidance notes caution against casual use of the term force majeure and stress the need to define the event, the threshold, and the contractual consequences with care. The ICC Force Majeure and Hardship Clauses, and Article 7.1.7 of the UNIDROIT Principles, offer a similar framework for thinking about impediments beyond a party’s control and hardship that substantially alter the economic balance of the contract.[20]
On delay damages, the basic construction law point remains unchanged. Extension of time machinery exists in large part to preserve the employer’s right to liquidated damages while avoiding time at large. Aceris Law’s Handbook chapters on delay claims and liquidated damages are a useful reminder that the distinction between time relief and monetary relief remains central, and that agreed damages clauses will continue to matter when project completion moves beyond the original date.[21]
Suspension and Termination
If the disruption persists, suspension and termination disputes may follow. A party may say that performance has become commercially or practically unsustainable and that the contractual threshold for suspension or termination has been reached. The other side may say the threshold has not been crossed, or that the right has been used opportunistically. As commentators have observed, the FIDIC Red Book deals expressly with prolonged force majeure termination, while regional civil codes may approach total impossibility, partial impossibility, and temporary impossibility differently.[22]
Why Arbitration Remains Central to Middle East Construction Disputes
Arbitration will remain the preferred forum for many of these disputes. Major construction projects in the Middle East commonly involve foreign investors, international contractors, offshore suppliers, financing structures spanning several jurisdictions, and multi-tiered contracts governed by different laws. In that setting, arbitration offers a neutral forum, confidentiality, procedural flexibility, specialist decision-makers, and an enforcement framework better suited to cross-border construction disputes. The ICC’s 2019 Report on Construction Arbitrations and Aceris Law’s practical note on the costs of construction arbitration both underscore how technically complex and document-heavy these cases usually become.[23]
What Construction Businesses Should Do Now to Protect Arbitration Claims?
For contractors, developers, and suppliers operating in the UAE and across the region, the practical response should begin with the contract. Force majeure, hardship, change-in-law, escalation, suspension, termination, and notice provisions should be reviewed now, while there is still time to act deliberately. Procurement routes and payment channels should be stress-tested. Project teams should identify the items most exposed to shipping or compliance delay and decide whether acceptable alternatives exist. Projects documented on JCT or NEC forms should revisit the relevant event, compensation event, and fluctuation machinery with the same care as FIDIC users review their claims and exceptional events clauses.[24]
Record-keeping is just as important. Often, the most important document on a project does not seem significant at first. A supplier email, a rejected payment instruction, a revised delivery schedule, a meeting minute, or a short internal note recording the reason for resequencing may later become central evidence. Experts often highlight how important it is to give early notice, keep accurate records, and manage projects actively. Aceris Law’s guidance on handling construction disputes and delay claims explains these points in greater detail.[25]
In cases involving multiple-layered contract chains and back-to-back contracts, it is essential that the review encompasses the entire contractual structure. The remedies available under a subcontract or supply agreement may differ substantially from those provided in the engineering, procurement, and construction (EPC) or main contract. Such discrepancies can be significant, particularly when contracts are subject to different governing laws or impose distinct notice requirements.[26]
Conclusion
The U.S.-Iran war is already impacting construction projects in the Middle East. The primary legal challenge is no longer whether disruption will occur, but how to allocate, document, and resolve it.
For parties exposed to higher costs, delay, sanctions friction, or supply chain interruption, the strongest position will usually belong to the side that moved early, kept the record straight, and understood how its contract actually allocated risk. If the dispute proceeds to arbitration, that groundwork will matter far more than general and broad references to instability in the region.
If you are facing a potential arbitration dispute, or looking to avoid one through early strategic advice, do not hesitate to contact Aceris Law’s team of international arbitration lawyers.
[1] For a broader background, see Aceris Law, The Iran Conflict and Arbitration Disputes.
[2] International Energy Agency, The Middle East and Global Energy Markets (2026); UN Trade and Development (UNCTAD), Strait of Hormuz Disruptions: Implications for Global Trade and Development, 10 March 2026; International Maritime Organization, IMO condemns attacks on shipping, calls for safe-passage framework in Strait of Hormuz, 19 March 2026.
[3] PwC Middle East, 2025 Capital Projects & Infrastructure Survey, 3 July 2025; Turner & Townsend, UAE market intelligence: construction growth, 27 October 2025; Rider Levett Bucknall, Middle East Update – Construction Market Intelligence – Q1 2026, 12 March 2026.
[4] See Aceris Law, Managing Construction Disputes: Understanding the Causes; see also Aceris Law, Understanding Risk Allocation in FIDIC Construction Contracts.
[5] UNCTAD, Hormuz shipping disruptions raise risks for energy, fertilizers and vulnerable economies (2026); M. Fleischman, The 2026 Iran War and Its Global Impact on Construction Supply Chains, Baker Donelson, 9 March 2026; A. Shrivastava, The Middle East conflict: how it could impact construction and how to be prepared, Construction Management, 16 March 2026; K. Shahdadpuri and R. Khan, Construction claims in the current regional geopolitical climate, Construction Week, 2 April 2026.
[6] See Aceris Law, Understanding Risk Allocation in FIDIC Construction Contracts; Aceris Law, Variation Claims in International Arbitration; Aceris Law, Errors in the Employer’s Requirements under FIDIC Contracts: Legal Implications and Lessons Learned.
[7] Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 (HL).
[8] Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 (HL); Ocean Tramp Tankers Corp v V/O Sovfracht (The Eugenia) [1964] 2 QB 226 (CA); Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm); Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch).
[9] For further discussion of critical path delay, notice requirements, and evidentiary issues, see Aceris Law, Delay Claims in International Arbitration.
[10] See Aceris Law, 2026 Construction Arbitration Handbook.
[11] Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC); North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744; Obrascon Huarte Lain SA v HM Attorney General for Gibraltar [2014] EWHC 1028 (TCC), affirmed by [2015] EWCA Civ 712; see also Aceris Law, Understanding Risk Allocation in FIDIC Construction Contracts; Aceris Law, Errors in the Employer’s Requirements under FIDIC Contracts: Legal Implications and Lessons Learned.
[12] U.S. Department of the Treasury, Office of Foreign Assets Control, Guidance for Shipping and Maritime Stakeholders on Detecting and Mitigating Iranian Oil Sanctions Evasion, 16 April 2025.
[13] Mamancochet Mining Ltd v Aegis Managing Agency Ltd [2018] EWHC 2643 (Comm).
[14] Lamesa Investments Ltd v Cynergy Bank Ltd [2020] EWCA Civ 821.
[15] RTI Ltd v MUR Shipping BV [2024] UKSC 18.
[16] Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018] EWHC 1640 (Comm); Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102.
[17] R. Harkavy, Iran war: Middle East construction projects brace for disruption, ICLG, 12 March 2026; K. Shahdadpuri and R. Khan, Construction claims in the current regional geopolitical climate, Construction Week, 2 April 2026; A. Shrivastava, The Middle East conflict: how it could impact construction and how to be prepared, Construction Management, 16 March 2026.
[18] See Aceris Law, 2026 Construction Arbitration Handbook: Selected Topics (International Construction Arbitration, 2026 Edition).
[19] K. Shahdadpuri and R. Khan, Construction claims in the current regional geopolitical climate, Construction Week, 2 April 2026; see also Aceris Law, Variation Claims in International Arbitration; Aceris Law, Understanding Risk Allocation in FIDIC Construction Contracts.
[20] International Chamber of Commerce, 2020 ICC Force Majeure and Hardship Clauses; FIDIC, Force Majeure (Guidance Note, 2012); 2016 UNIDROIT Principles of International Commercial Contracts, Art. 7.1.7.
[21] See Aceris Law, 2026 Construction Arbitration Handbook: Selected Topics (International Construction Arbitration, 2026 Edition); see also Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC); Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67; Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79.
[22] K. Shahdadpuri and R. Khan, Construction Claims in the Current Regional Geopolitical Climate, Al Tamimi & Company, 17 March 2026, discussing FIDIC Red Book Clause 19 and regional civil-code treatment of total, partial, and temporary impossibility.
[23] ICC Commission on Arbitration and ADR, Construction Industry Arbitrations: Recommended Tools and Techniques for Effective Management, 18 February 2019; see also Aceris Law, Costs of Construction Arbitration.
[24] A. Shrivastava, The Middle East conflict: how it could impact construction and how to be prepared, Construction Management, 16 March 2026; R. Harkavy, Iran war: Middle East construction projects brace for disruption, ICLG, 12 March 2026.
[25] Ibid.; see also Aceris Law, Managing Construction Disputes: Understanding the Causes; Aceris Law, Delay Claims in International Arbitration.
[26] R. Harkavy, Iran war: Middle East construction projects brace for disruption, ICLG, 12 March 2026; Aceris Law, Back-to-Back Clauses in Construction Arbitration.
