Fred RiversIran Closed the Strait — and Left Aussie Businesses Exposed
On 28 February 2026, Iran effectively shut the Strait of Hormuz to commercial shipping following US and Israeli strikes. Three months later, traffic through the waterway — which normally carries roughly 20 per cent of the world's oil and gas — remains near zero. One in six Australian businesses has experienced direct supply chain disruption, according to industry data. Fuel costs and freight charges have become the single most cited reason for rising operating expenses across the country.
What few business owners realise is that their insurance and contracts may not protect them at all.
Why Standard Policies Are Leaving Businesses Exposed
When supply chains break down because of a geopolitical event, the natural assumption is that business interruption (BI) insurance will cover the losses. In most cases in Australia, it will not.
Peter Beard, manager of technical services at Insurance Advisernet, confirmed in May 2026 that the Hormuz crisis is "exposing coverage gaps across multiple lines" including marine, property, transport, and aviation. The critical limitation is structural: most standard BI policies only trigger when there is physical damage to the insured business's own premises. Without physical damage somewhere in your direct supply chain, the policy simply does not respond.
Contingent Business Interruption (CBI) cover exists specifically for upstream supplier disruptions, but it too typically requires physical damage at the key supplier's location — not a geopolitical blockade at sea. The Hormuz closure is a political event, not a physical damage event, and that distinction matters enormously in policy wording.
Meanwhile, major P&I (Protection and Indemnity) clubs cancelled war-risk cover for Gulf and Persian Gulf transits effective 5 March 2026 — just one week after the closure began. Without war-risk insurance, commercial operators faced total uninsured liability for vessel loss, cargo loss, and crew casualties. Major shipping lines responded by refusing Hormuz cargo bookings altogether.
Force Majeure: The Clause That Doesn't Compensate You
With insurance falling short, many businesses are reaching for another legal tool: the force majeure clause. And here, a common misconception creates real financial risk.
In Australian contract law, force majeure is a purely commercial concept. It does not exist in statute, at common law, or in equity. It applies only if your contract contains an express force majeure clause — and even then, that clause typically relieves your obligation to perform, not your financial losses. As law firm Herbert Smith Freehills Kramer noted in May 2026 analysis: force majeure provisions arising from the Middle East conflict can suspend or excuse performance, but they do not trigger compensation.
The practical consequence: a business relying on a supplier whose shipments are stranded in the Gulf may invoke force majeure to excuse its own non-performance to customers. That delays the liability problem. It does not resolve the cash flow problem — and when the force majeure period ends, performance obligations resume with the same supply shortages still in place.
Aluminium producers, petrochemical importers, and manufacturers dependent on Middle Eastern raw materials have already filed force majeure notices in 2026. Australian businesses receiving those notices from overseas counterparties need legal advice urgently — those notices affect your rights and timelines too.
What Australian Importers Must Check Right Now
With 90 per cent of Australia's liquid fuel imported and war-risk cover removed from the Strait, every Australian business with import exposure should take three immediate steps:
1. Review your contracts for force majeure language. Does your contract define what qualifies as a force majeure event? Does it include government action, war, or political instability? Does it require notice within a specific timeframe? A solicitor can assess whether your supplier's force majeure notice is valid and what your options are if they fail to deliver.
2. Audit your insurance schedule against the actual risk. Ask your broker specifically: Does my BI policy trigger without physical damage? Do I have Contingent BI cover? Is there a war or political risk exclusion I should know about? As the Insurance Advisernet assessment confirmed, brokers are now recommending clients keep detailed file notes of all war-risk advice and supply chain extension options — documentation that becomes critical in a dispute.
3. Assess your fuel exposure and diversification options. The Australian government joined more than 40 countries on 13 May 2026 in a multilateral mission supporting freedom of navigation through the strait, committing E-7A Wedgetail aircraft to the effort. Diplomatic resolution is possible, but timelines remain uncertain. Australian businesses cannot rely on the crisis resolving quickly.
When a Lawyer Becomes Your Most Valuable Asset
The Hormuz disruption is not a standard supply chain event. It sits at the intersection of maritime law, contract law, insurance law, and international commercial obligations. For many Australian businesses, the relevant clauses in their contracts have never been stress-tested.
A commercial lawyer who specialises in supply chain and insurance law can:
- Interpret whether a force majeure notice from a supplier is legally valid
- Advise on your rights to claim damages if a supplier fails to deliver
- Review your BI insurance policy wording and identify coverage triggers
- Draft improved force majeure language for future contracts
Australia's Commercial Arbitration Acts also provide mechanisms for contract dispute resolution without resorting to litigation — faster and less costly for businesses trying to restore operations under pressure.
For guidance on Australian business and trade resources during the crisis, Austrade maintains current updates for Australian exporters and importers at austrade.gov.au/news.
YMYL disclaimer: This article provides general legal and financial information only and does not constitute legal advice. If your business is affected by supply chain disruption from the Strait of Hormuz closure, consult a qualified Australian commercial lawyer for advice specific to your contracts and insurance policies.
ExpertZoom connects Australian businesses with qualified commercial lawyers who specialise in contract, insurance, and trade law — find a specialist today.
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