The Middle East Crisis: A Practical Guide for Finance Transactions – Part 2

Practical checklist for managing transaction risk during geopolitical disruption

Beyond the initial structuring and closing phase, lenders must also consider the operational and contractual risks that may arise as geopolitical instability continues to affect logistics, insurance markets and supply chains. The checklist below highlights key areas where finance documentation and transaction management frameworks may need to adapt to maintain resilience during periods of conflict.

Sanctions screening and compliance

Issue

Escalating conflict may trigger rapid changes in sanctions regimes affecting:

• Counterparties
• Vessels
• Insurers
• Payment channels

Sanctions exposure may arise from transactions involving parties linked to sanctioned jurisdictions or entities.

Practical solutions

Enhanced sanctions representations

Include representations covering:

• Sanctions compliance.
• Non-designation of counterparties.
• Compliance with US, EU and UK sanctions regimes.

Ongoing monitoring covenants

Require borrowers to:

• Conduct periodic sanctions screening.
• Notify lenders immediately if exposure arises.

Flexible payment channels

Structure payment mechanics allowing:

• Alternative correspondent banks.
• Multi-currency accounts.
• Fallback payment systems.

Sanctions-triggered mandatory prepayment

Include provisions allowing lenders to:

• Suspend funding.
• Require early repayment.
• Exit transactions if sanctions exposure emerges.

Insurance and war risk coverage

Issue

Conflict conditions have increased marine war-risk insurance premiums and tightened coverage terms, particularly for vessels operating in the Arabian Gulf region.

Some shipping routes and ports now require additional war-risk endorsements, while insurers may impose exclusions or higher deductibles.

Practical solutions

Require war-risk insurance

For projects involving shipping or offshore infrastructure:

• Mandate marine war-risk insurance.
• Include coverage for terrorism, sabotage and political violence.

Minimum coverage thresholds

Define:

• Minimum policy limits.
• Acceptable insurers.
• Lender loss-payee endorsements.

Insurance adjustment mechanisms

Allow borrowers to:

• Increase coverage.
• Switch insurers.
• Amend policies.

without lender consent if required to maintain operational coverage.

Force majeure insurance extensions

Where available, include:

• Political risk insurance.
• Business interruption coverage linked to conflict events.

Force majeure and material adverse change (MAC) clauses

Issue

Escalating conflict increases the risk that borrowers may invoke force majeure provisions or that lenders may face ambiguity regarding the threshold for a Material Adverse Change.

Practical solutions

Conflict-specific force majeure definitions

Explicitly reference:

• War.
• Military conflict.
• Maritime blockades.
• Sanctions escalation.

Objective MAC thresholds

Define MAC triggers based on:

• Measurable financial impacts.
• Operational disruption thresholds.

Cure periods

Provide borrowers with:

• Remediation periods.
• Restructuring opportunities before enforcement.

Communication and crisis management framework

Issue

Geopolitical volatility requires rapid decision-making between lenders, borrowers and project sponsors.

Practical solutions

Establish crisis communication protocols

Define:

• Escalation procedures.
• Designated contact points.
• Response timelines.

Regular risk reporting

Require borrowers to deliver:

• Geopolitical risk updates.
• Logistics and insurance status reports.

Scenario planning

Transaction documentation may include conflict contingency plans, addressing:

• Supply disruptions.
• Sanctions escalation.
• Insurance withdrawal.

Conclusion

The evolving geopolitical environment in the Middle East requires banks structuring finance transactions to move beyond traditional documentation approaches and adopt operational resilience as a core structuring principle.

Disruptions to shipping routes, insurance markets and regulatory processes – exacerbated by the current conflict affecting air travel and key trade corridors such as the Strait of Hormuz – demonstrate how quickly operational assumptions can change.

By incorporating flexible CP timelines, enhanced sanctions compliance frameworks, robust insurance structures and contingency planning into finance documentation, banks can ensure that transactions remain executable and resilient even in periods of

geopolitical instability.