THE HORMUZ DILEMMA
Posted on 9th April 2026
As hostilities in the Middle East choke the world’s most vital maritime artery, Malaysian businesses are finding that “Acts of God” reliefs are increasingly governed by the fine print.
The Strait of Hormuz has long been the world’s most precarious jugular. When geopolitical tensions between the United States, Iran, and Israel escalated into a blockade, that jugular is now Iran’s nuclear option. The ripples are felt far beyond the Persian Gulf. In Malaysia, exporters and importers are currently grappling with a sobering reality: shipment delays and skyrocketing logistics costs that threaten the equilibrium of global trade and damaging economies.
While some global energy giants have responded by declaring force majeure, and insurers have unceremoniously yanked war-risk coverage. Marine insurers are rapidly cancelling war coverage or demanding eye-watering premiums. Thus, the legal safety net for many businesses is proving to be dangerously frayed. Because standard policies typically exclude war-related claims, businesses without standalone “war risk” policies find themselves sailing unprotected into the storm.
Force majeure is strictly a “creature of contract”
In the pedantic world of Malaysian contract law, a crisis does not automatically grant a “get out of jail free” card.
In Malaysia without an express clause in the agreement, the courts offer little sympathy, leaving parties to rely on the doctrine of frustration under Section 57(2) of the Contracts Act 1950. This is a notoriously high bar; frustration requires performance to be physically or legally impossible, not merely expensive, inconvenient, or less profitable.
Even with a clause in place, the evidential burden remains heavy. To successfully invoke relief, a company must prove:
- Direct Causation: The specific event (war or blockade) directly caused the non-performance.
- Lack of Control: The failure to perform was beyond the party’s reasonable control.
- Exhaustive Mitigation: Every reasonable step was taken to avoid or mitigate the fallout.
Malaysian courts have historically held that a “bad bargain is still a bargain”. Consequently, a contract that becomes a financial drain due to surging freight rates is unlikely to qualify for force majeure relief.
A Double Edged Sword
Declaring force majeure is a double-edged sword. Beyond the immediate risk of litigation over ambiguous drafting, there is the risk that invoking such a clause signals unreliability to partners, potentially poisoning long-term relationships.
Risk Mitigation
For businesses navigating these turbulent waters, survival could depend on proactive legal and operational discipline:
- Notice Provisions: Many contracts impose strict deadlines for notifying a force majeure claim. Failing to adhere to these timeframes can result in the total forfeiture of the right to relief.
- Bridge the Supply Chain Gap: Businesses must ensure “back-to-back” alignment. It is a catastrophic commercial failure to have a supplier claim force majeure upstream while remaining legally exposed to customers downstream.
- Document “Reasonable Endeavors”: Courts expect “proactive mitigation,” such as rerouting or alternative sourcing. Maintain detailed, contemporaneous records of these efforts. If an attempt to find a new route or supplier isn’t documented, in the eyes of the law, it never happened.
- Define the “Mode of Performance”: While mitigation is required, recent jurisprudence suggests suppliers may not be forced to adopt a mode of performance—such as an entirely different unloading port—if it was never contemplated in the original contract.
- Negotiate Pragmatic Solutions: Given the risks of declaring force majeure, many firms are finding more value in shifting schedules or adjusting prices through negotiation rather than retreating behind a legal shield.
In a world of increasing geopolitical volatility, a robust, precisely drafted contract is no longer a mere formality; it is a vital piece of survival equipment
[For enquiries please contact caesar.loong@rlse.law]