Oil and Power Advisory No. 002
29 March 2026
1. For every oil company with crude supply agreements, shipping charters, and downstream sales contracts, the 2026 Iran conflict activates clauses that have been sitting quietly in those documents, often for years, waiting for precisely this kind of emergency. Understanding which clauses are triggered, what they do, and what they oblige the parties to do is now an urgent legal and commercial priority for any company in the Philippine oil supply chain.
2. The most immediately consequential clause in any crude oil supply agreement is the force majeure (FM) clause. A standard FM clause excuses non-performance when an event beyond a party’s control, such as war, blockade, or the closure of a navigational strait, makes performance impossible or impracticable. The Strait of Hormuz closure falls squarely within this language. A supplier of Middle Eastern crude may invoke FM to suspend or cancel deliveries entirely, leaving the Philippine buyer without contracted volumes and facing refinery throughput reductions. The buyer, in turn, should check whether its own FM clause gives it reciprocal rights to suspend payment obligations or to source from alternative suppliers without penalty. The FM clock starts running from the moment the triggering event occurs, and most contracts require prompt written notice, typically within two to five business days, or the right is deemed waived.
3. Shipping contracts introduce a separate and technically precise body of war risk law. Voyage charter parties under the VOYWAR 1993 form or the CONWARTIME 2004 form give the shipowner the right to refuse to enter, or to deviate away from, any port or zone that is designated a war risk area. The Strait of Hormuz and the broader Persian Gulf were already being monitored as elevated risk zones before the current conflict. Active hostilities trigger a legal right of refusal. When a shipowner exercises that right, the charterer (the oil company that hired the vessel) must accept deviation via an alternative route, typically the Cape of Good Hope around the southern tip of Africa. The BIMCO War Risks Clause, which appears in many standard forms, additionally entitles the shipowner to charge extra freight for the additional distance sailed. That cost lands directly on the charterer’s crude acquisition price.
4. War risk also restructures the insurance obligations embedded in every cargo voyage. Standard marine cargo policies contain a war and strikes exclusion, meaning that loss or damage caused by military action, missiles, or mines is simply not covered. Separate war risk cargo insurance must be obtained, and underwriters price it per voyage based on current conditions in the transit zone. During active hostilities in the Persian Gulf, premiums spike dramatically, and the position worsens because most war risk policies contain a seven-day cancellation clause that allows underwriters to withdraw coverage on short notice if conditions deteriorate. An oil company that does not monitor its insurance position closely may find, at precisely the moment a tanker is transiting a conflict zone, that its war risk cover has lapsed. The contractual and financial exposure of an uninsured cargo loss in such circumstances is severe.
5. Further down the supply chain, the war and its price consequences activate clauses in downstream petroleum product sales agreements. An oil company that sells refined products (gasoline, diesel, jet fuel, LPG) under fixed-price contracts is particularly exposed: it must sell at the locked price while its own crude acquisition cost is rising sharply. Price reopener clauses, which allow either party to request renegotiation if a specified index moves beyond a trigger band, become critically important tools at this point. If the contract has a reopener, the seller should invoke it immediately and attach the relevant Platts price data documenting the index movement. If it does not have a reopener, and the seller cannot pass through rising costs, the result is margin compression that, in a prolonged crisis, can become a solvency issue. On the buyer side of the same contracts, take-or-pay clauses (which obligate buyers to pay for a minimum volume whether or not they actually lift it) remain in force, meaning that buyers cannot simply walk away from their purchase commitments because prices have risen.
6. The immediate practical steps for any company in the oil supply chain are these. First, pull every material contract and identify which clauses are triggered by war, armed conflict, navigational closure, or material price movement, and confirm that notice deadlines have not passed. Second, check war risk insurance cover today and verify it has not been cancelled or is not about to expire on seven-day notice. Third, quantify the freight deviation exposure on current voyage charters and factor the Cape premium into landed cost projections. Fourth, identify all fixed-price sales contracts and assess the economic damage under a sustained price spike scenario, then decide whether to invoke a reopener or initiate renegotiation. In a fast-moving crisis, the company that acts on its contractual rights first is invariably in a stronger position than the one that waits for its counterparty to act first.
Geronimo Law advises clients on energy regulation, oil and power law, DOE and ERC proceedings, and energy contracting. For inquiries, contact us at attorney@geronimo.law, +63 9999329836, or through www.geronimo.law. We are located at 6/F Valero One Center, Valero St., Salcedo Village, Makati City.
This advisory is for general information only and does not constitute legal advice. Consult counsel for advice on specific situations.
