The ongoing and escalating conflict involving Iran, the United States, and Israel has created a profound shift in the geopolitical landscape of the Middle East, with direct and measurable consequences for businesses operating across the region, including the Kingdom of Saudi Arabia. Disruptions to critical trade corridors — including the Strait of Hormuz and the Red Sea — alongside airspace closures, and widespread logistical uncertainty, have created an environment in which the performance of contracts has become significantly more challenging and, in certain cases, entirely impossible.
This alert provides a high-level overview of the potential impacts on contracts in general and outlines the key statutory considerations that businesses should be aware of under the Saudi Civil Transactions Law (Royal Decree No. M/191, 2023) (“CTL”).
Legal considerations under Saudi CTL
Where contracts are governed by Saudi law, the CTL provides several mechanisms that may be available to parties whose performance has been affected by events beyond their control. Unlike some legal systems that treat force majeure as a distinct and narrowly defined concept, the CTL adopts a broader formulation. Force majeure is expressly recognized in the CTL as an example of events beyond control, and the law does not require that the event be universal. What matters is its nature vis-à-vis the party responsible for performance and the degree of its impact on the parties’ ability to perform. Depending on that the circumstances, the law provides different mechanisms, as explained below:
1) Force Majeure— Articles 110, 171, and 174 and 294 CTL
Full Impossibility
What does it cover?
Where an event beyond a party’s control renders contractual performance completely and objectively impossible, the CTL provides relief operating across two complementary provisions.
Article 110/1 of the CTL gives specific and immediate effect to this principle in the context of bilateral contracts. Where performance of an obligation becomes impossible for a reason beyond the debtor’s control, both the affected obligation and its counterpart are automatically extinguished — and the contract terminates by operation of law, without the need for a court order, a notice of termination, or any further step by either party. However, if the parties do not agree that the event did in fact render performance impossible, they may resort to the courts to confirm such impossibility.
In addition, Article 294 of the CTL sets out the basic principle: where a debtor can show that its failure to perform was caused by an event outside its control that made performance impossible, its obligation is extinguished. Any corresponding obligation on the other side is extinguished as well. In this case, the burden of proof lies on the party claiming impossibility.
Read together, Articles 294 and 110 reflect a coherent and principled approach: where the law has rendered performance genuinely impossible through circumstances outside the debtor’s control, it will not hold the debtor to an obligation that can no longer be fulfilled.
What is the implication of termination?
Article 111 of CTL governs the consequences that follow. Upon termination, both parties are to be reinstated to the position they were in before the contract was concluded. Where reinstatement is not possible, the court may order compensation instead. For time-based contracts, termination does not operate retroactively — it takes effect going forward only, and the court may order compensation where appropriate.
What is the key condition?
The impossibility must be complete and objective — meaning performance must be genuinely and objectively impossible, not simply more costly, more difficult, or commercially inconvenient. The cause must also be entirely beyond the debtor’s control.
Are there any exceptions?
Article 174 creates a significant exception to this protection. Where the parties contractually agree that the debtor shall bear the effects of non-performance under circumstances beyond its control, the default protection afforded by Articles 110 and 294 is displaced entirely, and the debtor remains liable for non-performance even where the event would otherwise qualify for relief.
Partial Impossibility
What does it cover?
Where only part of a contractual obligation has become impossible to perform, the CTL does not automatically lead to the termination of the entire contract. Instead, Article 110/2 provides that the impossibility extinguishes only the affected portion of the obligation and its corresponding obligation. The creditor retains the right to request full termination, though a court may decline to grant this where the impossible portion is insignificant relative to the contract as a whole. The same approach applies to temporary impossibilities arising under time-based contracts.
What is the key condition?
The impossibility must affect a part of the obligation. Where termination is granted, Article 111 requires that both parties be reinstated to their position prior to the contract. Where reinstatement is not possible, the court may order compensation.
Are there any exceptions?
As noted above, a court retains the discretion to refuse full termination where the portion that has become impossible is minor or insignificant relative to the overall contractual obligations. Parties should therefore not assume that partial impossibility will automatically entitle them to exit the contract entirely.
Delay
What does it cover?
Where the conflict has not prevented performance entirely but has caused a delay, Article 171 CTL provides that a debtor who fails to perform on time will not be liable to compensate the creditor where the delay was caused by a reason genuinely beyond the debtor’s control. Port closures, airspace restrictions, and supply chain disruptions arising from the current conflict may all qualify, provided a clear causal link can be established and documented.
What is the key condition?
The debtor must demonstrate a direct causal connection between the event beyond its control and the failure to perform on time. A delay that was foreseeable at the time of contracting, or that falls within a risk the debtor assumed under the contract, will not attract this protection.
Are there any exceptions?
Article 171 operates as a liability shield only — it removes exposure to delay compensation but does not entitle the debtor to suspend performance indefinitely or exit the contract. Where the delay becomes prolonged to the point of rendering performance impossible or excessively burdensome, the provisions discussed above and below will become relevant instead.
2) Excessive Onerousness – Article 97
What does it cover?
Where the impact of the conflict falls short of rendering performance impossible — but has made it significantly more burdensome due to extraordinary and unforeseeable circumstances — Article 97 provides a distinct remedy. The debtor is entitled to invite the other party to renegotiate the contract without undue delay. If no agreement is reached within a reasonable period, the court is empowered to reduce the onerous obligation to a reasonable level, taking into account the circumstances and the interests of both parties.
What is the key condition?
The circumstances causing the burden must be extraordinary and unforeseeable — meaning they could not reasonably have been anticipated at the time the contract was entered into. Importantly, the right to request renegotiation does not entitle the debtor to suspend or withhold performance in the meantime. Performance must continue while renegotiation is pursued.
Are there any exceptions?
As noted above, Article 97(4) expressly voids any contractual provision purporting to exclude or limit this right — meaning parties cannot contract out of this protection. That said, this remedy applies only when performance has become more burdensome, not where it has become impossible. Parties should take care not to overstate their position, as an unfounded claim of impossibility may constitute a breach.
Conclusion
In light of the ongoing regional conflict and the significant legal and commercial risks it presents, businesses with contracts governed by Saudi law should take immediate proactive steps to manage their exposure. In particular, parties should:
- Check when the contract was signed relative to the start of the conflict, as this affects the ability to claim.
- If performance has become significantly harder, consider requesting renegotiation but keep performing in the meantime.
- Check whether any clause in the contract places force majeure or events-beyond-control risk on you, which could limit your options.
- Send any required notices strictly in line with the contract terms — missing a deadline could cost you your right to claim relief.
- Keep clear and detailed records of every disruption, delay, and additional cost, including how it is linked to the conflict.
- Take reasonable steps to mitigate the impact of the event — failure to do so may undermine a force majeure defense, as courts will likely examine whether the party attempted to avoid or minimize the disruption.
The situation continues to develop and the legal questions involved can be complex. They strongly recommend obtaining legal advice as early as possible so that you can act before problems escalate into disputes.
Key Contacts
Dr. Abubaker Jeeballah, Partner, a.jeeballah@tamimi.com
Philip Kotsis, Partner, Head of KSA, p.kotsis@tamimi.com
Emad Salameh, Partner, Head of Office - Riyadh, e.salameh@tamimi.com