EXECUTIVE OVERVIEW
The US/Israeli attacks and subsequent conflict in the region have placed legal and commercial strains for businesses operating in the Kingdom and across the Gulf.
This bulletin highlights the principal areas requiring immediate legal attention:
- force majeure and contractual performance;
- force majeure and contractual performance;
- construction and infrastructure contracts;
- sanctions and export controls;
- insurance and war-risk coverage;
- personal data protection;
- corporate governance and regulatory obligations; and
- dispute preparedness.
The central issue for most businesses is whetherconflict-related disruption renders contractual performance legally impossible, or merely substantially more difficult and expensive. That distinction is critical under the Saudi Civil Transactions Law.
FORCE MAJEURE AND CONTRACTUAL PERFORMANCE UNDER THE CIVIL TRANSACTIONS LAW
The Civil Transactions Law(issued pursuant to Royal Decree No M/191 dated 29/11/1444 AH) establishes two distinct doctrines relevant to conflict-related disruption:
(1) Force majeure: Article 110
Article110 applies where performance becomes objectively impossible, not merely more expensive or burdensome. This may include:
- physical destruction of a project site;
- inability to deliver goods through a closed route where no contractual alternative exists;
- performance becoming legally prohibited, including by sanctions designations; or
- closure of relevant airspace by competent authorities.
Where impossibility is total, the affected obligation and the corresponding counter-obligation are extinguished by operation of law. Where impossibility is partial or temporary, only the affected part maybe extinguished or suspended.
(2) Hardship: Article 97
Article 97 applies where an exceptional, general, and unforeseeable (as at the time of contracting) event makes performance excessively onerous so that it may cause heavy loss to the obligor. The mechanism is procedural and mandatory:
- the affected party must invite without undue delay the counterparty to renegotiate;
- performance must continue during negotiations; and
- if no agreement is reached within a reasonable period, the court or tribunal may reduce the onerous obligation to a reasonable level.
Unlike force majeure, Article 97 cannot be contracted out of. Any clause purporting to exclude it shall be void.
(3) Contract drafting and risk allocation
Many contracts contain be spoke force majeure clauses. Those clauses must be reviewed carefully alongside the statutory regime:
- a broader contractual clause may govern, subject to mandatory law;
- if the clause is narrower than the statute, Article 110 may still operate as a backstop; and
- Article 97remains available regardless of contractual wording.
(4) Construction contracts
Construction and works contracts require particular attention. The Civil Transactions Law includes specific provisions on muqawala contracts, including rules relevant to price imbalance, judicial rebalancing, termination, and payment for completed work where completion becomes impossible for reasons beyond the contractor’s control.
Contractors and employers should review:
- lump-sumpricing provisions;
- extension of time and notice requirements;
- change in law and change in circumstance clauses;
- termination rights; and
- entitlement to payment for partially completed works.
(5) Immediate action points
Businesses should now:
- review material contracts and map relevant force majeure, hardship, change-in-law, and pricing provisions;
- classify each disruption correctly as rendering performance impossible or merely excessively onerous;
- serve all required notices promptly;
- continue performing obligations that remain capable of performance;
- preserve contemporaneous evidence; and
- assess knock-on exposure under financing, hedging, and supply chain arrangements.
Sanctions and Export Controls
The conflict has intensified an already complex sanctions environment. The principal exposure points are US, EU, UK, UN, and anySaudi-specific restrictions or designations.
Particular risk arises from:
- dealings involving sanctioned counterparties, vessels, intermediaries, or beneficial owners;
- indirect Iran nexus through subcontractors or payment chains;
- secondary sanctions risk affecting entities with US financial system exposure; and
- maritime trade involving opaque ownership, AIS manipulation, ship-to-ship transfers, or frequent flag changes.
Priority steps include:
- screening counterparties, vessels, and beneficial owners against relevant sanctions lists;
- reviewing supply chains and financial flows for direct and indirect Iran exposure;
- applying enhanced due diligence to shipping and trade documentation;
- strengthening internal escalation and reporting procedures; and
- maintaining full records of compliance decisions and screening results.
Insurance and War-Risk Coverage
The conflict has the impact to materially affect insurance availability and pricing across the Gulf, especially for marine, aviation, cargo, property, and business interruption risks.
Companies should immediately:
- review all insurance policies for war, terrorism, hostile acts, and civil unrest exclusions;
- confirm notification requirements for actual or potential claims;
- assess whether coverage extends to drone, missile, interception debris, cyber incidents, and related infrastructure damage;
- verify marine and cargo war-risk cover for Gulf and Red Sea transits; and
- review Contractor’s All Risks and Erection All Risks policies for project exposure.
- Late notice or failure to comply with policy conditions may prejudice recovery.
Personal Data Protection
Conflict conditions may trigger data protection risks under the Personal Data Protection Law, particularly where businesses activate business continuity or disaster recovery plans.
Key considerations include:
- ensuring personal data is not transferred to non-approved jurisdictions through emergency failover arrangements;
- assessing whether physical or cyber-related disruption has caused a reportable breach;
- handling employee health, location, and emergency data on a lawful and proportionate basis; and
- reviewing third-party processor resilience and contractual obligations.
Where a personal data breach occurs, businesses should be prepared to meet applicable notification obligations promptly.
Corporate Governance and Regulatory Obligations
Boards and senior management should treat the conflict as an enterprise-level legal and risk issue.
Priority governance measures include:
- convening urgent board or risk committee meetings to assess the impact of the conflict on the operations, risk profile, and strategic plans;
- updating enterprise risk registers and business continuity plans;
- assessing contractual, operational, treasury, and insurance exposure;
- considering disclosure obligations, including for listed issuers where the impact may be material; and
- reviewinggoing-concern assumptions where operations, cash flow, or financing are materially affected.
Financial institutions and regulated entities should also reassess AML andcounter-terrorism financing controls in light of increased sanctions evasion and illicit flow risks.
Disputes and Evidence Preservation
Conflict-related disruption often leads to disputes over termination, suspension, delay, additional cost, sanctions compliance, and insurance recovery. Businesses should prepare now rather than after positions harden.
Recommended steps:
- preserve notices, internal decisions, carrier communications, government directives, and market data;
- maintain a clear chronology of disruption and mitigation efforts;
- avoid in formal correspondence that may prejudice legal position;
- review governing law, dispute resolution clauses, and escalation procedures; and
- consider early strategy for injunctions, emergency relief, arbitration, or court applications where performance or cash flow is at risk.
Recommended Areas
CONCLUSION
The current conflict presents afast-moving and legally complex environment for businesses in Saudi Arabia and the GCC. The interaction of force majeure, hardship, sanctions, insurance exclusions, operational disruption, and regulatory oversight requires coordinated legal analysis across contracts, compliance, risk, and disputes.
Businesses should take immediate, documented, and legally structured steps to protect their position. Early assessment and timely notice will, in many cases, determine whether relief is preserved or lost.
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