In brief
- Despite ongoing peace talks, the conflict in Iran is already giving rise to disputes, including a recent case before the English High Court. We are likely to see further litigation emerge, especially if the current phase of negotiations fails.
- The United States’ sanctions policy toward Iran continues to be in flux, leaving businesses to navigate an unpredictable landscape in which compliance positions can shift within days.
- Given the protracted nature of the conflict, the UAE has entered a new phase, putting in place permanent mitigations to reduce reliance on the Strait of Hormuz.
- As uncertainty over the conflict and access to the Strait of Hormuz continues, parties operating in the region should consider what litigation risks they face and may want to explore litigation as a means of recouping their own losses.
Following our recent articles on the impact of the Iran war on Russia sanctions and proposed tolls in the Strait of Hormuz, Mishcon de Reya's London and Dubai offices bring you an update on current sanctions and litigation risks in light of the latest developments in the conflict.
What litigation risks arise out of the Iran conflict?
Since the Memorandum of Understanding (MOU) between the US and Iran was declared "over" by President Trump in early July 2026, the conflict between the two nations has quickly re-escalated. Despite continued negotiations, the sustained and volatile nature of the conflict means we are likely to see an increasing volume of commercial litigation, principally driven by two converging factors.
First, existing clauses in commercial contracts may not contain sufficient flexibility to address the materially changing risk environment in the region and operational disruption arising out of the conflict. Delay and higher costs in performing contractual obligations are likely to be a recurring flashpoint, whether resulting from vessels being re-routed, ordered off port, or unable to transit the Strait of Hormuz. English law typically imposes a high threshold before performance under a contract is considered to be "impossible". Failing to perform contractual obligations as a result of higher associated costs will, absent clear wording in the contract, generally not excuse a party from breach. These operational challenges may also cause tension between charterers and owners when deciding on a safe course of action. Clauses concerning the impact of war, such as force majeure provisions, may well also be triggered – a risk that may widen in geographic scope as Yemen's Iranian-allied Houthi rebels threaten vessels in the Red Sea. Beyond disputes arising out of operational disruptions, parties should also expect to see insurance coverage disputes come to the fore.
Secondly, the cessation of hostilities under the MOU in June, and more recently the short ceasefire in late July, will have provided parties with the time and stability to consider their legal position and convert potentially paused disputes into formal proceedings. The renewal of hostilities following the MOU will also have made clear that a resolution to the conflict will not be straightforward. As a result, parties who may otherwise have been prepared to wait for a peace deal, in the hope that normal contractual performance would soon resume, may now be more motivated to start proactively seeking redress for losses they have suffered.
Sanctions exposure, already a key risk when dealing with Iran, has also become more complicated as the diplomatic position changes, and may well become a further source of disputes in connection with, for example, any payment of tolls to Iranian entities.
View from the US
The current status of the MOU is best described as suspended. Signed as a political framework only, and carrying no legal effect, the practical significance of the MOU lay in the US Office of Foreign Assets Control’s (OFAC) implementing actions described below. Although the parties are reportedly continuing discussions, none of the US government’s sanctions-related undertakings have been implemented and Iran remains subject to comprehensive US sanctions.
The MOU established a framework for broader negotiations between the United States and Iran, including an undertaking by the United States to terminate sanctions against Iran. On 22 June 2026, the US government took the first concrete step outlined in the MOU when OFAC issued General Licence X (GLX). GLX temporarily authorised the production, delivery and sale of crude oil, petrochemical products and petroleum products of Iranian origin to 21 August 2026, as well as associated activities and services necessary to facilitate these activities (i.e. shipping, port operations, insurance underwriting, financing and US dollar payments to Iran). However, following Iranian attacks on commercial vessels in the Strait of Hormuz in early July, President Trump declared the parties’ ceasefire was “over” and OFAC revoked GLX on 7 July 2026.
GLX was superseded by General Licence X1 (GLX1), effectively removing the sanctions relief that had been granted in GLX. However, GLX1 granted a ten-day wind down period for businesses that had begun activities under GLX, provided that any payments due to a blocked person were deposited into a blocked, interest-bearing account located in the United States. There is no general license authorising trade in Iranian-origin oil currently in place: the primary and secondary sanctions directed at Iran that were in place prior to 22 June 2026 currently remain in force.
On 29 July 2026, OFAC designated ten entities and eight vessels reportedly related to Iran’s efforts to "monetize the Strait of Hormuz." These recent developments highlight the speed at which US sanctions can change. The fluidity of US sanctions creates uncertainty for any companies seeking to do business in or with Iran.
A crystallised dispute in the UK
Mercuria Energy Trading S.A. v Baltic Exchange Information Services Limited is a key example of commercial litigation arising from the conflict.
Global commodities giant, Mercuria, has brought a claim in the English High Court against Baltic Exchange, a provider of benchmark shipping indices. The claim concerns TD3C, a benchmark tracking freight rate for Very Large Crude Carriers transporting crude oil from the Gulf to China. The reliability of TD3C has been called into question as the route it measures is heavily affected by the effective closure of the Strait of Hormuz. Mercuria claims that the benchmark no longer reliably represents the underlying market it is intended to measure, and that Baltic Exchange breached its contractual or statutory duties by failing to suspend the benchmark. As a result, Mercuria claims to have suffered losses on physical freight contracts and freight derivatives benchmarked to TD3C, which are estimated to be worth hundreds of millions of US dollars. Baltic Exchange denies the claim in full, asserting that it produces its benchmarks according to established and robust governance frameworks, methodologies and oversight processes, and that it has met and continues to meet all its obligations.
The outcome of this case will carry consequences beyond the immediate parties. A Mercuria success would raise questions about how index-linked contracts respond when war, sanctions, or security risks disrupt benchmark routes. Meanwhile, a Baltic Exchange success would confirm that a benchmark can remain assessable in stressed conditions even where it diverges sharply from underlying market reality during a crisis.
The parties appeared before the Court in late July for a case management conference and an expedited hearing is scheduled for 26 October 2026. Meanwhile, there remains scope for future litigation if commodity traders and energy companies with contractual agreements reliant on the same benchmark consider bringing similar claims.
The UAE's response: a permanent mitigation
The conflict has accelerated efforts within the UAE to reduce reliance on the Strait of Hormuz and strengthen alternative trade and energy corridors. A significant development in this strategy is DP World's agreement in principle with the Fujairah Ports Authority to develop two new container and general cargo terminals on the UAE's east coast. Located on the Gulf of Oman, outside the Strait of Hormuz, the facilities are intended to provide an alternative gateway for cargo flows that would otherwise be dependent on transit through the Strait of Hormuz. The project reflects a broader recognition among governments, port operators, cargo interests and other commercial stakeholders that recent disruptions have exposed vulnerabilities in existing trade routes and increased the operational and contractual risks associated with reliance on a single maritime chokepoint.
The same risk-driven approach can be seen in the energy sector, where the UAE has accelerated development of a new West-East Pipeline that is expected to significantly increase the state-owned oil company ADNOC's export capacity through Fujairah and further reduce dependence on the Strait of Hormuz. Together, the Fujairah port and pipeline projects demonstrate how the public and private sector are responding to the disruption experienced during the hostilities by investing in alternative trade and export corridors. While these developments may reduce future exposure to delays, diversions and access restrictions, they also illustrate the extent to which regional businesses are now viewing geopolitical disruption as a structural commercial risk requiring long-term mitigation rather than a temporary operational challenge.
Conclusion
Clearly the position is fast-moving and unpredictable, but given the already protracted nature of the conflict and the length of time before the UAE's mitigation efforts will bear fruit, it seems inevitable that further commercial disputes arising out of the Iran conflict will emerge.
Although parties operating in the region will now be well-versed in dealing with the operational fall-out from the war and closures of the Strait, it will be increasingly important to consider litigation, both as a risk from counterparties and a potential source of remedy while the uncertainty continues.