QatarEnergy declared force majeure in March. The documentation questions were pivotal, but the litigation will probably come from allocation of supply when Ras Laffan restarts.
When the Strait closed on February 28, the contractual attention went where it always goes first — to the force majeure declarations themselves. Whether the language in a given SPA was broad enough to cover a military closure. Whether portfolio-based supply arrangements gave sellers more flexibility than train-specific contracts. Whether buyers had any meaningful remedies in the interim. QatarEnergy declared on March 4. Kuwait Petroleum Corporation and Bahrain's Bapco followed within days. Iraq declared force majeure on all oilfields developed by foreign oil companies on March 17.
But before we get to allocation, there is a threshold legal question that is getting less attention than it deserves.
Extended force majeure periods trigger termination rights in most LNG supply agreements, typically after a defined period that varies by contract. The Strait has been effectively closed for more than two months. The April 8 ceasefire collapsed within days, the Islamabad talks failed on April 12, and the US imposed a naval blockade of Iranian ports on April 13. There is now a dual blockade. Iran is restricting Gulf traffic, the US is blockading Iranian ports, and the Pentagon has testified that mine-clearing alone could take six months. Reopening is not imminent. For some contracts, termination windows are opening now, and the allocation question only matters if those contracts survive intact.
Assuming they do, the allocation dispute is where I expect the real fights to concentrate.
When volumes start moving again, sellers will face competing buyer entitlements across annual delivery programs and quarterly scheduling windows, all colliding at once against physical infrastructure that cannot satisfy all of them simultaneously. The order in which buyers get gas will depend on contract structure, and there is no industry-standard answer to who goes first.
The train-specific versus portfolio contract distinction matters here, but it does not cut cleanly in one direction. Sellers with portfolio or multisource arrangements have operational flexibility to begin deliveries across their book, but that same flexibility may weaken their force majeure defense. It is harder to argue that non-performance was caused by events at a specific train if the contractual obligation was never tied to that train. Train-specific contracts give buyers a cleaner nexus between the declared event and the non-performance, but they create a queue problem on restart that nobody has resolved in contract language. Both structures carry litigation exposure. The answer in any given case depends on precise language that was probably not written with a simultaneous multi-seller restart in mind.
For counterparties with financial derivative exposure on the same underlier, commodity swaps referencing LNG or related benchmarks, the 2002 ISDA force majeure provisions are doing work right now that most agreements were not designed to handle at this scale. If the reference commodity cannot settle because the physical market is closed, close-out valuation is not a theoretical question. What is a commercially reasonable replacement transaction when Ras Laffan is offline and European spot markets are at multi-year highs? I have been advising on cross-border energy transactions for more than thirty years, and the honest answer is that this scenario is outside the stress-tested range of most existing agreements.
The window to address these questions is before the Strait reopens, not after. Allocation arguments are easier to make before volumes start moving and commercial relationships begin to harden around the sequence of deliveries. Review the FM termination provisions now. Know where your contract sits on the train-specific to portfolio spectrum and what that means for your defense and your claims. If you have commodity swap exposure on the same underlying, look at your close-out mechanics before a counterparty does it for you.
Robin Katz Powers advises hedge funds, investment advisers, endowments, pension funds, and other alternative investment strategies on derivatives documentation and regulatory compliance.
