UAE Project Disruption and Geopolitical Risk — Key Contractual Considerations

4 min 32 sec April 2, 2026 (Edited)

Written by

Mark Brown

Partner, Head of Projects

m.brown@tamimi.com View LinkedIn Profile

Marianna Margaritidou

Associate

M.Margaritidou@tamimi.com View LinkedIn Profile

The military conflict ensuing in the Gulf region following the events of 28 February 2026 has direct impact on developers, sponsors, lenders, contractors and insurers and their infrastructure projects in the region. This article sets out certain key issues parties should be considering now.

Is There a Qualifying Event?

UAE infrastructure and energy projects are typically governed by detailed, bespoke project agreements that contain express force majeure and government action provisions. Unlike English common law frustration, these clauses do not operate automatically. A party seeking relief must satisfy each limb of the applicable definition, which typically requires that the event:

• is beyond the affected party’s reasonable control;
• could not have been prevented or avoided through the exercise of reasonable diligence;
• was not reasonably foreseeable at the contract date; and
• actually prevents performance of the relevant obligation (or, pre-completion, materially delays the critical path or causes material additional cost).

The foreseeability limb warrants particular attention in the current context. For projects entered into before the onset of the current conflict, this threshold is more readily satisfied. For projects contracted after hostilities commenced, parties should assess carefully whether the event in question was already foreseeable at the contract date, as this may preclude reliance on contractual relief altogether. Parties should address the scope of relief provisions expressly in any new contracts entered into during the current period.

Critically, many project agreements contain an enumerated list of sanctioning states whose sanctions or embargoes can constitute a qualifying government action event. Any sanction or embargo imposed by a state not on that list will typically fall outside the definition entirely, leaving the affected party without contractual relief regardless of the practical impact on the project. Parties should accordingly map their specific situation against the applicable contractual language and not assume that relief is available.

Supply Chain and Import Prohibition Exposure

Increased costs alone — whether arising from supply chain disruption, re-routing, or freight and insurance premium increases — will not usually, by themselves, constitute a force majeure or government action event unless the contract clearly allocates that risk. However, where a qualifying force majeure event is properly established, the contractor may be entitled not only to an extension of time but also to additional cost recovery depending on the nature of the event and the applicable contractual provisions. Parties should not assume that economic disruption, without more, provides a basis for relief, but should not overlook the potential to claim costs where a qualifying event is established.

Separately, where increased costs or supply chain disruption — even if falling short of a force majeure threshold — have rendered performance of a UAE-governed contract unduly burdensome as a result of exceptional and unforeseeable circumstances, Article 249 of the UAE Civil Code provides a hardship remedy allowing courts to intervene to restore contractual equilibrium. This remedy may be available independently of contractual force majeure provisions.

What Level of Impact Is Required?

Project agreements distinguish carefully between events that prevent performance (typically a high threshold, often approaching impossibility) and those that hinder, impede or delay it (a lower threshold). The relief available — and the mechanism through which it is claimed — will differ depending on which limb is engaged. Parties should identify with precision what is actually prevented or delayed, and why, before invoking any clause.

Where UAE law governs the contract, an important distinction applies between contractual and statutory relief. Article 273 of the UAE Civil Code extinguishes an obligation only where performance has become objectively impossible — a materially higher threshold than the “prevention” standard typically found in contractual force majeure clauses. A party that successfully establishes a contractual force majeure claim should not assume that it has automatically satisfied Article 273 for the purposes of statutory discharge of its obligations. A premature assertion of impossibility may constitute a repudiatory breach and should be approached with caution.

Notice and Procedure: A Critical Gateway

Relief under force majeure and government action provisions is invariably conditional on strict compliance with contractual notice requirements. Failure to comply with the applicable notice deadline can remove entitlement to relief entirely, regardless of the underlying merits of the claim. This is not a formality — it is a substantive condition to relief. Under many regional precedent examples, notice deadlines are short and operate as absolute bars to entitlement. Parties should review their specific contractual notice provisions urgently and serve protective notices promptly where there is any credible basis for a claim, even where the full extent of the disruption is not yet known.

Liquidated Damages: The Cost of an Unprotected Position

Where time relief is unavailable — because a qualifying event cannot be established or because notice obligations have not been met — liquidated damages regimes continue to apply at the agreed daily rates. The financial exposure from even a modest unprotected delay can be very significant. Parties should not assume that relief will be available and should model their LD exposure across realistic disruption scenarios without delay.

Prolonged Disruption and Termination Rights

Where a force majeure event persists over an extended period, termination rights may arise under the contract. The applicable thresholds and consequences will depend on the specific terms of the project agreement, and parties should review their contracts carefully to understand when these rights arise, what they entitle each party to, and what obligations arise on termination. A decision to terminate — or to resist termination — is one of the most significant a party can take in this context, and specialist advice should be sought before any such step is made.