Addressing the implications of conflict-related impacts in energy and oil & gas infrastructure

For players in the energy and oil & gas infrastructure sector, the conflict in the region has created extraordinary conditions – requiring organisations to maintain operations and support their teams while protecting commercial and contractual positions and navigating ongoing uncertainty.

The situation presents a significant challenge for energy and oil & gas infrastructure companies active in countries being targeted in the region. Recent projectile incidents affecting major refineries and processing facilities have resulted in shutdowns and force majeure declarations, underscoring the vulnerability of both upstream and downstream assets to regional escalation.

Disruptions to shipping through the Strait of Hormuz – driven by actual or potential vessel damage, insurer withdrawal, and the large-scale anchoring of tankers – have delayed the movement of equipment, bulk materials, and specialist modules critical to major infrastructure projects.

At the same time, airspace restrictions, limitations on flight operations, and heightened security measures have further constrained the mobility of personnel and resources, with knock-on effects for commissioning and other site-based activities.

While these developments may appear to fall within force majeure or exceptional event provisions, experience from large-scale disputes across the region shows that entitlement to time and cost is rarely automatic or straightforward. Parties must still demonstrate clear causation, procedural compliance, and a robust evidential record to secure relief.

Daniel Jackson, Partner at HKA, outlines a practical framework for addressing the contractual and evidential implications of conflict-related impacts, with the aim of protecting entitlement and minimising exposure to losses.

Immediate Priority Actions Following a Conflict Event

When a conflict‑related incident occurs, such as a projectile strike affecting energy infrastructure, an airspace closure, or a sudden disruption to shipping routes, project teams must act swiftly and decisively across three parallel workstreams. The aim is to protect people and assets, preserve contractual rights, capture the evidence required for any future claim and mitigate further risk.

Safety and Operational Protection
The immediate and overriding priority is the safety of personnel and the protection of critical assets. Typical actions include:

• Temporary suspension of site operations where safety cannot be assured.
• Evacuation or controlled reduction of workforce.
• Securing hazardous materials, plant, and live systems.
• Activating emergency response protocols.
• Coordinating with local authorities, security advisers, and asset‑owner control rooms.

All steps should be contemporaneously documented, as this record may later support claims relating to suspension, disruption, idle resources, or delay.

Contractual Positioning
Once immediate safety measures are in place; project teams must quickly establish their contractual position. Conflict‑related events may trigger force majeure / exceptional event provisions. However, they may also present relief mechanisms through change‑in‑law clauses, suspension rights, access, logistics, price escalation, government action, and/or at law. Key questions include:

• Does the event qualify as force majeure/exceptional event under the contract?
• Does the contract allow cost/loss recovery, or only extension of time/relief from other potential liabilities/consequences?
• Which specific clauses may provide entitlement to recover any lost time or additional cost/loss?
• What notice requirements apply?
• What time limits exist for notification?
• Are any government/other relevant authority directives or security restrictions relevant to entitlement?

Prudent practice is to issue protective notices reserving rights while the full impact is still being assessed.

Establishing the Evidential Baseline
It is critical to establish a clear baseline record of the project status at the time the event occurred. Key information should include:

• Progress and status of activities/works at the time of event.
• Labour, plant, equipment, temporary works, and subcontractors’ deployment records on site.
• Materials, plant, and equipment delivered, stored, or installed.
• Critical deliveries in transit, delayed, or cancelled.
• Photographs, logs, security reports and any operational restrictions imposed.
• Procurement schedule.
• Cost records of resources prior the event date.

These records form the foundation for later delay and quantum analyses of the impacts of the events.

Contractual Classification of the Event

Once the immediate situation is stabilised, it is prudent to determine how the conflict‑related incident is classified under the contract. This classification shapes all subsequent entitlement to time, money, suspension rights, and mitigation obligations.

Under many standard forms, events such as war, hostilities, terrorism, blockades, or government‑imposed restrictions may fall within the definition of an exceptional event, provided the conditions of being beyond the contractor’s control, unforeseeable, and unavoidable are satisfied.

Where an event is classified as an Exceptional Event, contractors are often entitled to:

• Extension of Time for the period in which performance is prevented.
• Suspension of the Works where necessary for safety or compliance with government or security directives.

However, most contracts do not automatically provide entitlement to additional cost/loss for conflict‑related impact unless expressly stated. This distinction between relief against time obligations and other potential liabilities/consequences and cost/loss recovery is commercially critical, particularly in the oil and gas sector where prolonged logistics disruption, supply chain rerouting, and resource idling can generate significant unrecoverable expenditure.

A clear and early understanding of the contractual categorisation enables the project team to:

• Adopt the correct notice strategy.
• Avoid prejudicing entitlement.
• Develop a mitigation approach.
• Manage stakeholder expectations regarding time and cost exposure.

Typical contractual provisions that may provide time and/or cost/loss relief include:

• Force Majeure / Exceptional Events.
• Prevention and access‑related clauses.
• Suspension provisions.
• Change in Law clauses.
• Escalation of rates and prices.
• Termination for prolonged force majeure or prolonged suspension.

Identifying the Types of Claims That May Arise

Conflict‑related events can give rise to several categories of claim, depending on the nature of the event and the contractual risk allocation. A clear understanding of these potential claims enables early strategy setting, timely notices, and effective evidence gathering.

Damage to the Works
Where a projectile strike, or related debris, directly damages works under construction, the following consequences typically arise:

• Reinstatement of the Works: The contractor may be obliged to reinstate damaged works and make safe any areas containing shrapnel / unexploded devices – this may give rise to an instruction and change under the contract.
• Extension of Time: Physical damage caused by conflict‑related events may qualify for an extension of time where it delays progress on critical activities.
• Recovery Through Insurance: Reinstatement costs may be recoverable under the project’s insurance arrangements, if the policy includes appropriate cover for war, terrorism, or malicious acts. Many recent incidents in the region highlight the importance of reviewing these policies proactively, as some industrial facilities in the GCC have suffered drone‑related fires or operational shutdowns.

Given the current regional environment, where insurers have withdrawn or restricted war‑risk cover for assets and maritime transport, project teams must carefully verify the scope of insured perils, exclusions, deductibles, and notification obligations.

A clear and contemporaneous record of damage, including photographs, inspection reports, asset logs, and security reports, is essential for supporting both contractual entitlements and insurance claims.

Delay Claims
Even where no physical damage occurs, conflict‑related disruption can generate significant time impacts. Recent events affecting refineries, fires linked to strikes in industrial zones, and widespread disruptions to shipping through the Strait of Hormuz, have shown how quickly project logistics and labour movement can be affected.

Typical sources of delay include:

• Supply chain interruption due to material shortages, diverted or stranded shipments, insurer withdrawal, or suspended marine routes.
• Loss or reduced availability of workforce, whether from safety restrictions, evacuation measures, or travel constraints.
• Restricted site access resulting from security measures, road closures, or airspace restrictions.
• Energy shortages or utility instability, especially where nearby energy installations have been targeted or temporarily shut down.

To succeed with a delay claim, it is essential to demonstrate that the event relied upon impacted activities in  the accepted programme. This requires a clear evidential record of:

• the programme status at the moment the disruption occurred.
• the affected work fronts, resources, and planned progress.
• the causal pathway between the incident and resulting delay.
• any mitigation efforts reasonably undertaken.

Robust contemporaneous records and a disciplined approach to delay analysis are critical, particularly in the oil and gas sector where logistics and labour disruptions can rapidly cascade into programme‑wide delay.

Additional Costs/Losses
Where conflict‑related events extend activity or project duration, contractors are likely to incur additional costs/losses arising from the extended presence of personnel, plant, and site facilities.

Typical additional cost categories include:

• Site management and supervision (extended project supervision, engineering and HSE oversight).
• Security measures, which often increase during periods of regional tension.
• Plant and equipment standby, including cranes, lifting equipment, contracted heavy plant, or specialist oil & gas machinery idle due to affected work fronts.
• Site accommodation, welfare and utilities, which continue to accrue even when progress is slowed or temporarily halted.
• Extended labour/subcontractor presence, where labour or specialist trades are retained during affected periods.
• Financing, arising from the need to secure additional funding to absorb unplanned costs, often at elevated borrowing rates.  
• Escalation, driven by constraints on air, sea, and land logistics, resulting in resource scarcity and cost inflation.
• Head Office Overheads costs/losses.

Recovery of prolongation costs is highly contract‑dependent. Many standard forms provide extension of time for exceptional events but do not automatically grant cost entitlement unless expressly stated (e.g., change in law, suspension, or employer‑risk events).

Parties ought to document:

• Cost incurred during the critical and compensable periods (cost ledgers, salary slips, invoices, purchase orders, etc.).
• Clear linkage between the conflict‑related event, the extended duration and the cost incurred. (deployment records, timesheets, plant logs, security invoices, accommodation registers, etc.).
• Costs were reasonable and unavoidable (tender comparisons, correspondence, risk assessments, etc.).
• Compliance with notice provisions and any cost‑to‑be‑justified requirements.

In the current operating environment, where conflict‑driven delays, logistics disruption, and insurer withdrawal are increasingly common, establishing this causal connection and maintaining clean records is essential to avoid significant losses.

Disruption and Productivity Loss
Conflict‑related conditions can significantly impair labour productivity, even where no direct damage to the works has occurred due to:

• Enhanced security procedures, such as increased entry checks, restricted movement within the site, or mandatory shelter‑in‑place periods.
• Workforce shortages, where personnel are unable to travel due to airspace restrictions, local movement controls, or safety advisories.
• Restricted working hours, imposed by security authorities or required to maintain safe operations under elevated threat conditions.
• Supply interruptions, caused by delays in critical materials or equipment, particularly where shipping routes such as the Strait of Hormuz have been disrupted or insurers have withdrawn cover, resulting in vessel diversions or cancellations.
• Labour inefficiencies, due to working in an environment subject to heightened uncertainty.

Such impacts may form the basis of disruption claims if properly evidenced.

Demobilisation and Remobilisation
Where conflict‑related conditions require a temporary suspension of works, contractors may face substantial costs associated with standing down and later restarting project operations.
Typical demobilisation and remobilisation cost categories include:

• Demobilisation of labour and plant, stand‑down of workforce, off‑hire of equipment, and transportation of personnel and critical plant away from site.
• Interim site security and preservation, maintaining essential security, environmental protection, and asset preservation measures during suspension.
• Remobilisation of workforce and equipment, re‑establishing site operations, redeploying labour and plant, and restarting construction activities once conditions allow.

These costs can be significant on large oil and gas projects, particularly where specialist plant, heavy lift equipment, or international labour are involved. All demobilisation and remobilisation activities should be documented contemporaneously, including instructions, timing, resource allocation, and costs.

Causation

In dispute proceedings, the existence of a conflict event is rarely disputed.  The key question is typically whether the event caused delay and/or additional cost/losses to the project.

Parties ought to demonstrate the timing of the event, which activities were affected, whether those activities were adversely impacted/critical to project completion, how long the impact lasted, and the costs and losses suffered.

Evidence Management – Building a Defensible Claim

Contemporaneous records are the most persuasive evidence in construction disputes. Project teams should ensure systematic collection of:

Site Records

• Daily site diaries.
• Attendance and gate access logs.
• Plant utilisation reports.
• Site activity records.

Programme Evidence

• Baseline programme.
• Updated programmes.
• Progress reports.
• Delay event records.

Procurement Records

• Supplier correspondence.
• Delivery delays.
• Shipping disruptions.
• Material shortages.

Cost Records

• Payroll records.
• Supplier invoices.
• Equipment rental costs.
• Site overhead cost records.

Together, these records form the evidential foundation upon which entitlement can be assessed.

Managing Subcontractor Claims

Subcontractor claims often form a major portion of conflict‑related project exposure. Parties should ensure:

• Subcontract notices are issued in accordance with subcontract requirements.
• Subcontractor claims are reviewed and validated for accuracy and contractual basis.
• Supporting evidence (records, cost data, delivery disruptions) is obtained and retained.
• Compensability, advancing subcontractor claims consistent with entitlements available under the main contract.

Failure to coordinate and substantiate subcontractor claims can leave parties carrying unrecoverable costs and significant commercial risk.

Insurance Considerations

Insurance becomes critical where conflict‑related incidents cause physical damage or disrupt logistics. Project teams should review:

• Contractor’s All Risk policies, confirm whether damage from hostile acts is covered.
• Marine cargo insurance, assess implications of war‑risk cancellations and vessel diversions.
• Political risk cover, consider protection against government‑imposed restrictions or expropriation.
• War and terrorism exclusions, many construction policies exclude losses arising from war, terrorism or military action, significantly affecting recoverability.

Many construction policies exclude losses arising from war or military conflict, which can significantly affect financial exposure. Early coordination with insurers and brokers is essential, as gaps in cover can leave contractors exposed to substantial liabilities.

Conclusion

Conflicts create a distinct and high‑impact category of delay and disruption for construction projects, particularly in the Middle East’s oil & gas sector. Although such events are beyond the control of the contracting parties, their consequences for schedule, logistics, workforce continuity and project costs can be immediate and substantial.

A critical point often overlooked is that force majeure or exceptional event provisions typically grant relief against time or other potential liabilities/consequences but do not automatically provide cost/loss entitlement. Parties must therefore examine the available contractual mechanisms, such as prevention, suspension, change in law, price escalation, and employer‑risk clauses, to determine whether cost recovery is available.

Securing entitlement depends on early contractual assessment, compliance with notice requirements, and maintaining comprehensive contemporaneous records.

By combining timely contractual action with disciplined programme, cost, and procurement evidence, and engaging specialist expertise where necessary, project teams can reduce exposure to unrecoverable cost/loss and ensure that valid entitlements are preserved, even amid the severe uncertainty created by regional conflict.