Risk allocation in a changing Middle East: practical lessons for shipping, trade and marine insurance markets

The past few months have placed the Middle East at the centre of global maritime and trade disruption. While the prospect of a broader de-escalation may ease immediate operational pressures, the legal, commercial and insurance implications for shipping, trade, insurance and logistics markets are likely to continue unfolding for some time.

For shipowners, charterers, traders, insurers, ports and logistics providers, recent events have exposed both vulnerabilities and opportunities in the way risk is allocated - contractually, operationally and financially. The lessons emerging from the market are clear: effective risk allocation is not simply about responding to isolated disruption events, but about building longer-term resilience, operational flexibility and commercial adaptability into maritime and trade structures.

Drawing on key perspectives shared during our recent panel discussion at our annual Shipping News event, this article considers how the current environment is reshaping operational, contractual and insurance risk across the shipping and trade chain.
 

THE CENTRAL THEME: RISK ALLOCATION IN A CHANGING MIDDLE EAST

Recent regional instability has provided a real-time stress test for how maritime risk is allocated in practice. Contracts, insurance arrangements, operational decision-making and local legal frameworks have all come under sustained pressure as market participants respond to rapidly evolving geopolitical and operational realities.

Across the discussion, a consistent theme emerged: many of the most significant commercial consequences do not arise directly from the geopolitical event itself, but from how contractual rights, insurance protections and operational decisions operate once disruption begins.

As risk profiles shift, the ability to allocate risk clearly, practically and proportionately, across both short-term operational disruption and longer-term commercial exposure, is becoming increasingly important in determining commercial outcomes.

Against that backdrop, several key areas are attracting particular focus across the market.
 

WAR RISK AND OPERATIONAL DECISION-MAKING IN REAL TIME

One of the clearest themes to emerge is that war risk assessments are inherently dynamic. Whether an owner can lawfully refuse voyage instructions, suspend performance or deviate from a planned route will depend heavily on the precise factual matrix at the relevant time. This would include objectively considering factors such as the nature and level of the threat, the probability of harm, characteristics of the vessel and cargo, and whether there has been a material change in the underlying risk profile since the relevant contractual commitments were made.

Modern war clauses can provide owners with important protections, including the ability to refuse orders, seek alternative voyage instructions and recover additional costs associated with deviation or rerouting. However, those protections remain highly fact-sensitive and may evolve quickly as geopolitical conditions change.

The discussion highlighted how timing can therefore become commercially critical. A voyage agreed during a period of relative stability may become materially more exposed to war risks if the security situation deteriorates after orders are accepted. Equally, owners who knowingly enter high-risk areas may later face more limited contractual protections if those risks subsequently materialise.

The position becomes significantly more complicated where contracts do not contain adequate war risk provisions. In those circumstances, parties may be forced to rely on implied rights or general legal principles, which often create greater uncertainty around both liability and cost allocation.

The practical lesson for market participants is clear: risk allocation mechanisms cannot be viewed as static boilerplate provisions. The current environment has reinforced the importance of ensuring that contractual protections are capable of responding to rapidly changing operational realities and evolving threat profiles.
 

INSURANCE MARKETS, WAR RISK PREMIUM AND BLOCKING AND TRAPPING EXPOSURE

One of the immediate market reactions has been the reassessment of war risk exposure and the corresponding increase in additional premium requirements for vessels operating in affected areas. 

Public commentary has often (and in large part unfairly) focused on the rising cost of cover. However, from a market perspective marine insurance structures have largely continued to function as intended, providing a mechanism through which operators can continue trading in higher-risk environments, albeit at increased cost and with heightened scrutiny.

The panel also explored the increasingly debated issue of blocking and trapping exposure with the risk of CTLs being presented in 6/12 months.

These issues remain highly fact-specific and heavily dependent on policy wording. However,  the longer restrictions, delays or navigational limitations persist, the greater the likelihood of claims being presented and disputes arising.
 

GENERAL AVERAGE AND THE REDISTRIBUTION OF MARITIME RISK

Recent disruption has also renewed focus on general average as a mechanism for allocating extraordinary costs and sacrifices incurred to preserve the wider maritime adventure.

Where owners take steps to preserve property involved in the common maritime adventure from peril, they may seek to declare general average in order to recover expenditure incurred for the common benefit of the interests (most notably ship and cargo).

In practice, this can create significant downstream commercial and insurance implications. Cargo interests will be required to provide security before cargo is released, while insurers and adjusters become involved in  assessing whether the relevant expenditure has been properly incurred and falls within established general average principles and, if so, the extent to which it might be argued the vessel was unseaworthy thereby affording a Rule D defence to avoid contributing in GA. Owners and their P&I insurers will naturally be looking to argue the opposite.

In periods of geopolitical instability, the practical and financial consequences of general average can escalate rapidly across the wider contractual and insurance chain.
 

UAE LAW CONSIDERATIONS AND LOCAL REGULATORY REALITIES

The current environment has also highlighted several important distinctions between English law and UAE law approaches to contractual disruption and risk allocation.

Under English law, force majeure remains primarily a contractual concept, with parties largely dependent on the wording of the clauses they have agreed. UAE law, by contrast, contains codified provisions dealing with force majeure, hardship and exceptional circumstances which may apply even where contracts are silent or incomplete.

In certain circumstances, UAE law may also permit judicial intervention where exceptional events render contractual performance excessively burdensome, even if performance has not become impossible. This creates a materially different risk profile for parties more familiar with purely common law approaches to contractual allocation.

Alongside those legal considerations, the market has also experienced a range of practical local operational issues, including:

• Port and authority procedures following incidents involving vessels;
• Police reporting requirements;
• Surveyor involvement and cargo inspections;
• Cargo handling restrictions; and
• Operational delays arising from local regulatory processes.

Another important observation was that local authorities have become increasingly focused on logistics pricing, surcharges and emergency operational costs during periods of disruption, particularly where supply chain pressures affect cargo delivery and transportation arrangements.
The broader lesson is that regional operational realities and local law considerations can no longer be treated as secondary issues. They are increasingly central to how maritime risk is managed in practice.
 

DELAY, DEVIATION AND THE ALLOCATION OF OPERATIONAL COST

Operational disruption rarely affects a single party in isolation. In practice, delays, rerouting decisions and discharge complications frequently create cascading liabilities across charterparty chains, cargo interests, insurers and downstream logistics providers.

Particular attention has focussed on situations where vessels are unable to berth or discharge cargo at the originally intended destination, forcing operators to consider alternative ports, transshipment arrangements or inland transportation solutions.

While those decisions may be operationally necessary, they often generate additional substantial costs, including storage expenses, transportation charges, congestion-related delay, insurance exposure and potential cargo claims. As disruption moves through the contractual chain, disputes frequently arise concerning which party ultimately bears those financial consequences.

The position may differ materially depending on the contractual structure involved, including whether the arrangement concerns a voyage charterparty, time charterparty or bill of lading relationship. Increase in the freight, demurrage entitlement, off-hire exposure, cargo liability and delay claims may all be affected differently depending on the contractual framework and governing law.

At the same time, regulators and local authorities in some jurisdictions are increasingly scrutinising emergency surcharges and disruption-related pricing practices introduced during periods of operational instability.

The current environment has reinforced a broader commercial reality: disruption costs are rarely absorbed at a single point in the supply chain. More often, they are pushed through multiple contractual relationships simultaneously, creating interconnected exposure across the wider maritime and trade ecosystem.
 

FORCE MAJEURE, FRUSTRATION AND THE IMPORTANCE OF CONTRACTUAL DRAFTING

One of the most important legal themes to emerge concerns the continuing misconception that force majeure operates as a standalone doctrine under English law. In reality, force majeure is entirely dependent on the wording used in the contract itself. In practice, many shipping contracts do not contain force majeure provisions at all, relying instead on bespoke risk allocation mechanisms such as war clauses.

Where force majeure clauses do exist, the precise drafting becomes critically important. Seemingly small wording differences - including whether performance must be “prevented” or merely “hindered” - can materially affect whether relief is available.

Equally significant are notice provisions and procedural compliance. Even where a qualifying event exists, parties may lose the benefit of contractual protections if notices are not served correctly or within required time periods.

Another recurring issue is mitigation. Parties seeking to rely on force majeure are generally expected to demonstrate that they took reasonable steps to avoid or minimise disruption where possible.

The discussion also touched on the doctrine of frustration, which under English law remains a narrow and high-threshold concept. Successfully establishing frustration generally requires demonstrating that contractual performance has become impossible or fundamentally different from what the parties originally contemplated when entering into the agreement.

The broader lesson is clear: careful contractual drafting remains one of the most effective tools available for managing geopolitical uncertainty and operational disruption.
 

PRACTICAL ACTIONS FOR MARKET PARTICIPANTS

While the geopolitical situation continues to evolve, market participants may wish to consider:

• Reviewing war risk, force majeure and deviation clauses across key contracts;
• Assessing whether current wording adequately addresses economic hardship and operational disruption;
• Revisiting notice provisions and internal escalation procedures;
• Ensure charterparty and bill of lading provisions operate consistently across the contractual chain; 
• Reviewing insurance coverage, notification obligations and blocking and trapping exposure;
• Strengthening operational protocols for routing, delay and cargo handling decisions;
• Document disruption events and contemporaneous decision-making carefully;
• Review exposure to demurrage, detention and storage claims;
• Stress-test supply chain resilience and alternative routing arrangements; and
• Consider governing law and jurisdiction implications across the contractual chain. In many cases, the greatest disputes exposure may arise not from the disruption event itself, but from gaps, inconsistencies or procedural failures within the surrounding contractual framework.

LOOKING AHEAD

While immediate operational disruption may fluctuate as the regional situation evolves, the legal and commercial consequences are likely to continue developing for some time.

Recent events have reinforced that maritime risk is rarely confined to a single issue, contract or stakeholder. Instead, disruption tends to expose how interconnected operational decisions, insurance arrangements and contractual frameworks have become across the shipping and trade ecosystem.

For market participants, the challenge has never been about simply responding to isolated geopolitical events. It is about building contractual and operational structures capable of adapting to sustained uncertainty, shifting risk profiles and increasingly complex allocation disputes, across the wider maritime supply chain.
 

CONTACT US

Should you have any queries or require specific advice in respect of the above, please do not hesitate to contact our Middle East Maritime, Trade and Offshore Partners.