Shaping Asia’s Infrastructure: How the Iran Conflict is Reshaping Construction Risk Across Asia

In this blog, we explore how the ongoing conflict is transmitting measurable risk into Asia's construction and infrastructure sectors; and the legal mechanisms that may be invoked to mitigate that risk. This is the ninth blog in our series: “Shaping Asia’s Infrastructure”, which explores legal developments shaping infrastructure across Asia.

The geopolitical backdrop

The US-Israeli military campaign against Iran, launched on 28 February 2026, has rapidly destabilised the energy and logistics architecture upon which a significant share of global construction depends. The Strait of Hormuz, through which approximately 20% of global oil passes, has become the critical pressure point. Major state producers have curtailed or halted exports entirely, tightening global supply at source. Oil prices have broken through the USD 110-per-barrel mark.

Rising oil prices feed directly into energy costs and the manufacture of many construction materials requires intensive energy. At sea, vessels have been rerouted away from the Gulf, extending transit times, driving up freight costs and triggering war-risk insurance surcharges that are being passed down supply chains at pace. Port congestion at alternative routing hubs has added further delay to the delivery of critical materials and long-lead equipment.

Commercial impact on Projects and Construction in Asia

Asia's construction sector is absorbing the hit on multiple fronts. The region is a large-scale importer of the energy, raw materials and specialist equipment underpinning infrastructure delivery, and the disruption to Gulf supply routes has compounded the squeeze on supply and cost.

The most immediate pressure is on input costs. 

• Bitumen, aluminium, steel and cement, all either sourced from the Gulf or energy-intensive to produce, have seen sharp price increases. Bitumen prices have risen more than 50% since February 2026, and bitumen exports from the Gulf to India for the month of March 2026 fell by 78% compared to March 2025.
• Aluminium prices have jumped 13% since hostilities began, with Japanese manufacturers, who source 70% of their aluminium imports from the Middle East, now bracing for a shortage lasting at least one year.
• Copper, which depends on Gulf-sourced sulphur for processing, is primed to spike further; half of the world's sulphur exports are at risk.
• Steel and cement face a parallel cost escalation as high gas prices are passed directly to buyers, compounded by freight surcharges on the longer Cape of Good Hope routing.

The effects at project level are already tangible. In India, road works across multiple states have stalled, with contractors reporting receipt of as few as two out of every ten scheduled material deliveries. In South Korea, supply disruption and soaring asphalt concrete prices have delayed the Sindo Peace Bridge in Incheon. In Japan, a critical naphtha shortage has triggered a shortage of styrofoam, delaying foundation work and stalling construction sequences across multiple sites. With naphtha-derived products ranging from insulation to waterproof membranes expected to face intensifying shortages and price increases as pre-conflict stocks are drawn down, Japanese contractors warn that the full weight of the disruption is still to come.

Across the wider Asia region, EPC contractors reliant on long-lead equipment manufactured in Europe or North America are experiencing disruption to critical deliveries driven by defensive reactions in global shipping networks. Rerouting, port congestion and insurance restrictions are causing delays even where there is no direct disruption to APAC ports.

Freight costs, insurance surcharges, and longer transit times are rapidly being passed down supply chains, while currency volatility in emerging APAC economies and higher borrowing costs driven by lenders pricing in geopolitical risk, are squeezing project finance structures that were underwritten in a different environment. The cumulative effect is a potential total "reset" of construction costs if the disruption persists.

The Legal Issues in Play

Force Majeure

Whether a force majeure type event translates into statutory or contractual relief for contractors turns on the precise statute or clause wording. Taking contractual relief:

• The trigger event in question must fall within the scope of the force majeure clause. Important considerations include whether war / hostilities, or the Hormuz Strait closure is covered (particularly where the project site is located outside the Middle East); and whether the current conflict would indeed constitute a war / hostilities (there has been no declaration of war by the U.S.; instead, the conflict has been described as a “military campaign”). Note: often in contracts, payment obligations are expressly excluded from being force majeure events.
• Typically, the force majeure event must have been unforeseeable or something the claiming party could not reasonably have provided against at the time of contracting. Given the previous unrest in the Middle East (including the 2025 “Twelve-Day War” between Iran and Israel), was the current situation unforeseeable? The time of contracting is key in answering that question.
• Usually, the event must cause the party claiming force majeure relief to be prevented from performing its contractual obligations. That requires an analysis of the impact of the force majeure event on those obligations – was performance impossible or just more expensive? Some of the challenges across Asia, such as vessel rerouting, repricing of war-risk insurance, and sharp increases in material and fuel costs, may fall outside the former category, but that depends on the contractual obligations in issue.

Care must be taken in preparing a force majeure claim to consider all the elements of the claim.

Even where force majeure is successfully invoked (which often also requires compliance with notice provisions), common contract drafting provides for an extension of time only, rather than compensation. 

Frustration

Where force majeure is not an available avenue of entitlement, the doctrine of frustration may, in theory, provide a residual option for contracts governed by the law of a common law jurisdiction. However, frustration has a high threshold to trigger, requiring an unforeseeable event that makes performance radically different from what parties contemplated, typically requiring performance to be physically impossible. In this regard, frustration has similar hallmarks to force majeure and, like force majeure, mere delays and cost increases are insufficient for a party to benefit from frustration relief. Where frustration is successfully established, it discharges all contractual obligations prospectively, extinguishing not only the obligation to perform but also any entitlement to future payment, which may be an outcome that contractors with an intention to complete their project wish to avoid.

Price escalation

Price escalation mechanisms may present a further avenue for recovery. Where price escalation clauses exist, evidence of cost increases illustrated by independently verifiable indices is considerably more defensible than internal cost records. Employers and contractors should be reviewing their contractual price adjustment provisions now, before the gap between what the clause covers and what the market has done becomes the subject of formal dispute.

Hardship

For contracts governed by a civil law, the hardship (or change of circumstances) doctrine may offer an avenue of relief where performance has become excessively onerous rather than impossible. However, this usually does not excuse performance, nor permit contractors to recover all their additional costs, but rebalances obligations through renegotiation or judicial/arbitral determination. For instance, under Article 533 of the Chinese Civil Code, a court may intervene to modify or terminate a contract where unforeseeable, non-commercial-risk events have fundamentally altered the basis of the bargain, making continued performance under the original contractual terms obviously unfair. 

Watch this space

Asia’s construction sector is directly affected by the Middle East conflict. Project participants from across the region will face significant economic pressure from its fallout, and should act without delay to review applicable contractual provisions, consider potential statutory / legal relief, issue relevant notices in time, and begin building the evidential record upon which any future claim will depend.

This blog should not be construed as legal advice.