The surge in oil prices and rising transportation costs are placing mounting pressure on businesses across virtually every sector. While the economic impact is visible, the legal dimension is equally important — and often overlooked. The questions businesses should be asking right now are: Who bears these risks under the contract? And at what point do these circumstances constitute a breach?

This article examines how the economic ripple effects of the Iran conflict are assessed under Thai law — specifically through the concepts of Force Majeure and Hardship — and how businesses can use legal frameworks as tools to manage these risks effectively.

From Oil Shock to Petrochemicals Shock and Supply Shock

Tensions in the Middle East — particularly around the Strait of Hormuz, one of the world’s most critical energy shipping corridors — have disrupted oil transportation and global logistics. Shipping routes are slowing down, being rerouted, and absorbing significant additional costs. The result is a sequential chain of economic disruption unfolding in three distinct waves.

First Wave: Oil Shock

Rapidly rising global oil prices force businesses to absorb higher fuel, electricity, and transportation costs simultaneously. Cost planning becomes increasingly difficult, and the risk of failing to meet contractual delivery obligations grows in parallel.

Second Wave: Petrochemicals Shock

As oil prices rise, petrochemical feedstock prices — such as naphtha and propane — increase accordingly. Some refineries and petrochemical plants are compelled to reduce production capacity, driving up the cost of plastic pellets and basic chemicals. Industries that depend on these materials as core production inputs bear the direct impact.

Third Wave: Supply Shock

A prolonged situation gives rise to a third wave: physical shortages. Plastics such as polyethylene and polypropylene — widely used in packaging and industrial components — become scarce, creating direct disruptions across supply chains. Thai businesses reliant on imports face a double burden: rising costs and insufficient supply.

A recent example is Siam Cement Group (SCG), which temporarily suspended operations at Rayong Olefins and declared force majeure to its counterparties under the relevant contractual provisions. It is a reminder that the impact of the conflict does not stop at energy prices — it cascades directly into contractual performance, affecting both sellers and buyers across the supply chain.

And then, quietly, comes a fourth wave that many businesses do not see coming until it is too late — what might be called the Legal Shock: the moment when rising costs and supply disruptions stop being a commercial headache and start becoming a question of contractual liability.

Which brings us to the central legal questions: Do these circumstances constitute Force Majeure, or do they fall under the more limited concept of Hardship under Thai law?

Force Majeure vs. Hardship Under Thai Law

Under the Thai Civil and Commercial Code, Force Majeure is defined as any event that could not be prevented, even if the party affected had exercised reasonable care expected of a person in the same position and circumstances.

Three elements must be satisfied for an event to qualify as Force Majeure:

(1)   Unforeseeable — A person in the same position and circumstances as the affected party could not reasonably have anticipated the event occurring.

(2)   Unavoidable — Even with reasonable precautions, the consequences of the event could not have been avoided.

(3)   Beyond Control — The event must arise from an external cause, not from any act or omission of the party invoking Force Majeure (Supreme Court Judgment No. 9047/2544).

Importantly, the Supreme Court has established that Force Majeure must render contractual performance genuinely impossible — not merely more difficult or more costly. A rise in construction material prices, for instance, does not constitute Force Majeure, as performance remains possible despite the higher cost (Supreme Court Judgment No. 2829/2522).

Hardship, by contrast, refers to situations where contractual performance remains possible, but an event that neither party could reasonably have anticipated at the time of contracting causes continued performance to become excessively onerous. Such hardship arises where the event is beyond the affected party’s reasonable control and could not reasonably have been avoided or its consequences overcome.

It is worth noting that Thai law does not expressly codify Hardship as a standalone legal concept. A party cannot invoke Hardship alone to seek modification of a contract, and the obligation to perform continues to apply. Hardship does not release a party from liability. In practice, however, it can serve as a legitimate basis for renegotiating contractual terms — provided the contract includes a renegotiation or adjustment mechanism. Such clauses are commonly found in international commercial contracts that reference the UNIDROIT Principles or ICC guidelines, which provide structured frameworks for balancing risk allocation between contracting parties.

Does the Iran Conflict Give Rise to Force Majeure or Hardship?

The cascading impact of Oil Shock → Petrochemicals Shock → Supply Shock has left many businesses grappling with three core problems: (1) sharply rising costs, (2) delivery delays, and (3) raw material shortages. Each carries distinct legal implications.

[1]     Rapid or Severe Cost Increases

As oil prices and freight rates rise, sellers are forced to absorb significantly higher input costs—covering raw materials, electricity, and transportation—often compressing margins severely or even turning performance loss-making. Buyers, meanwhile, face suppliers seeking price adjustments, delaying deliveries, or requesting renegotiation of terms to reflect higher costs.

A practical example: TOFUSAN, an organic soy milk producer, encountered a situation where its packaging supplier insisted that it cancel existing purchase orders and reissue them at prices 40% higher. This illustrates how cost volatility can quickly become both a legal issue and a negotiation challenge for both parties.

Although businesses may perceive surging fuel, freight, and energy costs as events beyond their control, these circumstances generally do not qualify as Force Majeure. Cost fluctuation is considered an inherent business risk that contracting parties are expected to manage. Parties may, however, agree in advance to allocate this risk contractually — for example, through price adjustment mechanisms, rights to extend delivery timelines, or provisions for renegotiation when exceptional circumstances arise.

As such, rising cost scenarios are more likely to constitute Hardship — particularly where the cost increase fundamentally alters the equilibrium of the contract, placing an excessive burden on one party that was neither contemplated nor assumed at the time of contracting.

Contract types commonly exposed to this risk include:

• Sale or manufacturing contracts with fixed pricing throughout the contract term, leaving the seller to absorb all cost increases
• Contracts with no price adjustment clause or cost-index formula
• Freight contracts with fixed service rates and no provision for fuel surcharges
• Contracts that permit price adjustments but lack clear criteria or caps on the extent of adjustment permitted

This type of exposure commonly appears in long-term supply and offtake agreements, infrastructure construction contracts, distribution agreements, franchise agreements, and project finance arrangements.

Where a contract contains no hardship clause or renegotiation clause, the party bearing the contractual risk will have no recourse and must absorb the increased costs entirely on its own.

[2]     Delivery Delays

Delays may arise from vessel rerouting, vessel shortages, or port congestion — each of which must be assessed on its own facts. Ordinary logistical delays generally do not rise to the level of Force Majeure. However, where a shipping route is formally closed or government measures render transportation genuinely impossible, there is a stronger basis for a Force Majeure claim.

Contract types commonly exposed to this risk include:

• Contracts where the delivery date is of the essence, with no right to request an extension
• Contracts providing for liquidated damages at a high rate for late delivery
• Contracts that expressly exclude upstream supplier delays as a ground for exemption from liability
• Contracts entitling the buyer to terminate immediately upon delivery delay beyond a specified period

Any assessment requires a careful examination of both the factual circumstances and the specific contractual language — in particular, whether supply chain disruptions or upstream supplier delays have been expressly addressed as grounds for exemption from liability.

[3]     Raw Material Shortages

Raw material shortages must be assessed by distinguishing between two distinct scenarios.

Scenario A: Materials remain available, but at significantly higher prices

Where raw materials can still be sourced — albeit at a substantially higher cost — the mere difficulty of procurement generally does not satisfy the conditions for force majeure. The continued ability to perform, even at greater expense, means the situation remains a business risk that contracting parties are expected to bear (Supreme Court Judgment No. 2829/2522).

This scenario is more likely to constitute Hardship, particularly where the cost increase fundamentally alters the contractual equilibrium for the seller or contractor. Where the contract contains no hardship clause or renegotiation mechanism, the affected party will likely have no contractual basis for relief and must bear the additional cost burden alone.

Contract types commonly exposed to this risk include:

• Contracts obligating the seller to procure raw materials without specifying the source
• Contracts that prohibit substitution of material specifications or suppliers
• Fixed-price contracts with no cost pass-through mechanism

Scenario B: Materials are genuinely unavailable or subject to import/export restrictions

Where a true market shortage exists — for example, where an upstream facility has shut down with no viable alternative source — or where legal restrictions or government measures render importation entirely impossible, there is a stronger basis for Force Majeure. In such cases, contractual performance is genuinely impossible, not merely more difficult or more costly.

Contract types commonly exposed to this risk include:

• Contracts that specify a particular source for raw material procurement
• Contracts that prohibit the use of substitute materials
• Contracts that expressly exclude upstream supplier failures from the scope of Force Majeure

In determining whether a raw material shortage qualifies as Force Majeure under Thai law, the key question is whether the event was one that “could not have been prevented even with reasonable care.” This must be evaluated on a case-by-case basis. Critically, the affected party must be able to demonstrate that it took reasonable steps to mitigate — including actively seeking alternative suppliers and substitute materials — and that the event arose from causes entirely outside its control, rather than from any act or omission on its part.

What Should Businesses Do Now — With Existing Contracts?

Navigating cost volatility and supply chain disruption begins with a clear understanding of how existing contracts allocate risk — and what contractual tools are available to respond. This means examining the relevant provisions on price adjustment, delivery timelines, exemptions from liability, and any mechanisms for renegotiation in times of crisis.

When facing the impact of rising costs, delivery delays, and raw material shortages, the appropriate strategy will differ depending on either a business is acting as buyer or seller. Each party should assess its position carefully — with the dual objective of managing legal exposure and reducing the likelihood of dispute.

If You Are the Supplier

The starting point is an honest assessment of your ability to perform — taking into account rising costs, the risk of delayed delivery, and the possibility of non-delivery altogether due to raw material shortages. That assessment should then inform how you read your contracts and how you approach negotiations with your customers.

The following steps are recommended:

(1)       Identify which party bears the increased cost or risk under each contract. This gives you a clear picture of your actual exposure and informs the decision of whether to absorb the burden, seek to renegotiate, or reduce volumes and suspend acceptance of further orders.

(2)       Review any price adjustment provisions or hardship clauses. Determine whether there is a contractual basis to request a price revision or renegotiation of terms — and if so, understand any applicable caps or limitations on the extent of adjustment permitted.

(3)       Examine the Force Majeure clause carefully, including the notice and mitigation obligations and the timeframes within which they must be fulfilled. Failure to follow the contractual procedures may result in losing the right to invoke force majeure.

(4)       Review any provisions for extension of time. Confirm whether you have the right to request an extension in abnormal circumstances, the required notice period, and the process for obtaining the counterparty’s consent.

(5)       Notify your customer promptly if delivery is likely to be delayed or if there is a risk of non-delivery. Early notification reduces exposure to liquidated damages claims and the risk of immediate termination by the buyer.

(6)       Document the impact and your mitigation efforts. Maintain records demonstrating the actual disruption experienced and the reasonable steps taken to address it — such as approaching alternative suppliers, diversifying sourcing, or adjusting production plans. This documentation will be essential if Force Majeure is later invoked or if the matter proceeds to negotiation or dispute.

(7)       Consider negotiating a temporary cost-sharing arrangement, rather than rigidly adhering to original terms until the business relationship breaks down. Practical options include:

• A temporary price adjustment for a defined crisis period, with a reversion mechanism once the situation improves
• A proportional sharing of increased fuel or raw material costs agreed between the parties
• Revised order volumes or delivery schedules to ease short-term cost pressure while maintaining supply continuity
• A temporary pricing formula linking part of the price to an oil or freight index for a specified period
• Alternative commercial arrangements, such as the buyer accepting a temporary price increase in exchange for minimum volume guarantees or a contract extension

Whatever is agreed should be put in writing — and written clearly enough that both parties understand it as a temporary arrangement, not a permanent change to the contract. Set a defined start date, an end date, and agree upfront on what triggers a reversion to the original terms or a further review. A short, well-drafted side agreement now can save a great deal of dispute later.

If You Are the Buyer

The starting point is an assessment of your own supply chain exposure — specifically, how a price increase, delayed delivery, or non-delivery by your supplier would affect your production and service continuity. That assessment should then be mapped against your contracts to identify what rights you hold and what risks you have assumed, so that you can plan your response and engage with counterparties from an informed position.

The following steps are recommended:

(1)       Identify which party bears the increased cost or risk under each contract — for example, whether the agreed price is intended to absorb all cost fluctuations, or whether the contract permits partial cost pass-through to the buyer. This gives you a clear picture of your actual exposure and informs your approach to any renegotiation.

(2)       Determine whether the supplier has the right to adjust the price, and on what terms — including the applicable index, the required notice period, and whether any cap or review cycle applies. This allows you to assess which price adjustments fall within the contractual framework and which may warrant a formal objection or further negotiation.

(3)       Review the provisions governing late delivery, including your rights to claim liquidated damages, to demand expedited performance, or to terminate the contract if delay exceeds a specified threshold.

(4)       Examine the scope of the Force Majeure clause — in particular, whether it covers cost increases or raw material shortages, and what procedural requirements the supplier must satisfy before invoking it, such as written notice within a prescribed timeframe and the supporting evidence required. This puts you in a position to assess whether any Force Majeure claim made by the supplier is contractually valid.

(5)       Develop contingency sourcing plans — including identifying alternative suppliers and distributing purchase orders across multiple counterparties — to reduce the risk of production disruption if any single supplier encounters difficulty.

(6)       Consider a collaborative approach to negotiation — for example, agreeing to a temporary price adjustment, revised delivery schedule, or phased acceptance of goods — so that both parties can continue operating without placing the entire burden on either side. Preserving the commercial relationship over the longer term is often of greater value than enforcing strict contractual rights in the short term.

Approaching the situation from the perspective of both parties makes it significantly easier to find workable solutions and reduces the risk of commercial disputes escalating into formal legal proceedings. This is particularly important at a time when cost pressures and supply chain uncertainty are unlikely to ease any time soon.

Conclusion: The Contract as a Strategic Tool

Beyond managing existing contracts, businesses should use the lessons from this period to build greater resilience into future agreements. New contracts should be structured with flexibility and risk management in mind. This may include incorporating hardship clauses or renegotiation mechanisms, price adjustment formulae linked to oil or freight indices, clearly defined procedures for contract review during periods of difficulty, and well-drafted force majeure provisions with clear notice requirements. Viewed through this lens, a contract is not merely a legal document. It is a strategic instrument — one that, if properly structured, enables businesses to navigate the volatility of geopolitical conflict and energy crises in a disciplined and systematic way.