Escalation of the Middle East conflict - why Polish business owners should respond
The ongoing armed conflict involving the United States, Israel and Iran goes far beyond its strictly military dimension. Analyses published by „The Wall Street Journal”, Goldman Sachs, „Fortune” and „Financial Times” clearly indicate that the consequences of this war are affecting global supply chains, energy commodity prices and the stability of financial markets. For Polish business owners, importers, exporters and investors, this means an urgent review of commercial contracts and of strategies for hedging currency and commodity risk, as well as an analysis of the force majeure clauses in their existing contracts.
In this article we present three scenarios for how the situation may develop, their impact on the Polish economy, and the specific legal steps worth taking to protect your company from the effects of the global crisis.
Three conflict scenarios and their impact on the global economy
The research firm Capital Economics, cited by Martin Wolf in the „Financial Times”, has identified three variants of how the situation in the Middle East may develop. Each of them has different consequences for global trade and contract law.
Scenario 1: A short, two-week conflict
This is the mildest variant, assuming a swift end to hostilities. The economic effects would include the loss of just under 1.5% of annual global exports of crude oil and LNG. At present this scenario is already out of date - more than two weeks have passed since the conflict broke out, and nothing points to an imminent end to the fighting.
Scenario 2: A three-month war without lasting damage to infrastructure
In this variant, hostilities last around three months, but extraction and transmission infrastructure is not irreversibly damaged. Even so, global exports of oil and LNG could fall by several per cent year on year, which would mean:
- a noticeable rise in energy costs in Western countries,
- growing public discontent linked to the high cost of living,
- temporary disruption to shipping through the Strait of Hormuz, followed by a gradual resumption of tanker traffic.
Scenario 3: Lasting damage to infrastructure - a global supply shock
The most pessimistic variant assumes a three-month conflict combined with lasting damage to key infrastructure, in particular on the Iranian island of Kharg. The consequences would be dramatic:
- a fall in global exports of energy commodities of almost 10%,
- a rise in the oil price to $150 per barrel,
- European gas prices of €120 per megawatt hour,
- a global supply shock comparable to the crisis of the late 1970s and early 1980s.
Experts stress that this scenario would force central banks into another difficult fight against inflation expectations and could delay interest rate cuts across the world.
The impact of the conflict on Europe, Poland and key markets
According to data from „The Wall Street Journal”, the European Union imports almost 60% of the fossil fuels it uses, which makes it particularly vulnerable to global price shocks. Although Europe does not import most of its commodities directly from the Middle East, the reduced supply from the Persian Gulf states is triggering a global bidding war for available cargoes from other sources - which directly pushes up gas prices on European exchanges.
For Polish business owners this means several tangible risks:
- Higher energy costs - manufacturing and logistics companies must expect a significant increase in operating costs.
- Currency risk - sharp swings in the prices of dollar-denominated commodities affect the PLN/USD and PLN/EUR exchange rates.
- Supply chain disruption - companies importing components or raw materials from Asia may face delays and higher freight costs.
- The return of inflation - according to the macroeconomic models used by Wall Street analysts, every lasting 10% rise in oil prices adds 0.2 percentage points to inflation and reduces GDP growth by 0.1 percentage points.
It is also worth noting that unexpected beneficiaries of the crisis are emerging on the global map. Russia is gaining from higher commodity prices and increased demand from Asian importers. Meanwhile, the transformation ambitions of the Persian Gulf states - such as Saudi Vision 2030 - are seriously threatened by the collapse of the region's image as a safe place to invest.
Legal aspects - how to protect your company during a crisis
In the face of growing geopolitical uncertainty, contract law and proper contractual safeguards play a key role. Polish companies should take immediate steps in several areas:
Reviewing force majeure clauses
Under Article 471 of the Polish Civil Code, a debtor may be released from liability for non-performance of an obligation if it results from circumstances for which the debtor is not responsible. Force majeure clauses in commercial contracts should be precisely worded and cover events such as armed conflicts, embargoes, blockades of sea routes and international sanctions. It is worth checking now whether your existing contracts contain appropriate provisions.
Securing commodity and logistics contracts
Companies using long-term contracts for the supply of energy commodities or components from Asia should consider:
- introducing indexation clauses that take account of fluctuations in oil and gas prices,
- renegotiating delivery terms to include alternative transport routes,
- diversifying sources of supply on the basis of a geopolitical risk analysis.
Compliance and international sanctions
In the context of the ongoing conflict, the introduction of new sanctions regimes against entities linked to Iran or other parties to the conflict cannot be ruled out. Polish companies engaged in international trade must monitor EU and OFAC (Office of Foreign Assets Control) sanctions lists on an ongoing basis and adapt their compliance procedures to the changing legal environment.
Insurance and hedging
It is worth reviewing the scope of cover provided by war risk insurance policies and considering hedging instruments that protect against sharp swings in commodity prices and exchange rates.
What next - outlook and recommendations for Polish companies
The situation in the Middle East is developing rapidly, and any of the scenarios described could materialise within the coming weeks. Whichever variant comes to pass, a proactive legal approach is the most effective way to protect your business interests.
Key recommendations include:
- a legal audit of existing commercial, logistics and insurance contracts,
- implementing procedures for monitoring sanctions and export regimes,
- preparing a strategy for renegotiating contracts in light of the changed price environment,
- consulting a legal adviser specialising in commercial law, international law and compliance.
The current crisis, although it carries serious risks, may also present an opportunity for companies that prepare early for the new economic reality. Business owners who put solid legal safeguards in place will gain a competitive advantage in an unstable market environment.
Do you need legal support in connection with the impact of the conflict on your business? Contact our firm. Our specialists in commercial law, international law and compliance will help you secure your contracts, identify risks and prepare your company for any scenario. Book a free consultation today - do not wait for the crisis to hit your business.
Have a question about this?
The first consultation is free - let us talk about your situation.
