Comparative Study of Force Majeure Clause in Upstream Oil and Gas Contracts in Iran and Common Law Legal System

Introduction
The principle of the sanctity of contracts is a fundamental tenet respected by all legal systems worldwide. According to this principle, the agreement provisions are binding, and neither party can refuse to fulfill their contractual obligations. However, in certain contracts, particularly long-term or continuous ones, unforeseen circumstances may arise that make fulfilling these obligations difficult or costly, sometimes even rendering the contract’s performance impossible. Between contract formation and execution, economic shifts or risks such as natural disasters, legal obstacles, political events, and economic disruptions may complicate or impede the obligor's ability to fulfill contractual duties, even making the contract unachievable or defeating its purpose.
In such contracts, the parties may foresee potential post-contract obstacles and include specific clauses, known as contractual excuses, which serve as exceptions to the general principle of contract necessity. This is particularly true in contracts within the oil and gas industry, especially in the upstream sector. The industry’s unique characteristics—its complexity, uncertainties, high capital requirements, long-term nature, and strategic significance—distinguish it from other types of international commercial contracts. The stages of exploration, development, production, and marketing in this sector are marked by instability, high risk, and a need for significant capital investment. The economic, political, environmental, and technological importance of these contracts has made it crucial to manage various risks by incorporating contractual excuses. Among the most important of these is the force majeure clause, widely recognized across legal systems worldwide.
Methodology
This research focuses specifically on upstream oil contracts, excluding general public (non-oil) contracts. Employing a library-based approach, the author examines upstream contracts from two legal systems, using an analytical, descriptive, and comparative methodology to assess the role of force majeure in these agreements.
Sampling Procedures
In this research, the subject of the study was upstream oil contracts from the two legal systems of Iran and the common law. The purpose of choosing these examples was to broaden and strengthen the comparative and comparative aspect of the subject. Since, the oil contracts have major differences from other contracts, on the one hand, and the common law legal system is based on judicial practice and the Iranian legal system is codified and written on the other hand, so the samples were chosen according to this actuality.
Sample Size, Power, and Precision
In both legal systems, only oil contracts and only the upstream sector have been examined, and in order to prevent the expansion of the research topic, other sectors and contracts have not been analysed.
Mixed methods research
This research is not a mixed methods research. In mixed methods articles, authors report research combining qualitative and quantitative empirical approaches.
Results
A legal review and analysis of numerous upstream oil and gas contracts in the Iranian and Common Law legal systems reveal differences due to the acceptance of private ownership of oil and gas resources in some Common Law jurisdictions. In Iran’s legal system, oil contracts generally stipulate that if force majeure leads to contract termination, incurred costs are depreciated up to a specified amount after developing the oil or gas field in question. Internationally, in cases of force majeure, the contract may be suspended for the duration of the event or a specific period. If force majeure persists or becomes permanent, the affected party has the right to terminate the contract. If the force majeure ceases before the end of this period, the contract is reactivated. The effects of force majeure can, therefore, include contract suspension, extension, or even dissolution. Beyond these, renegotiation is often used as a risk management tool in upstream oil and gas contracts, ensuring the protection of both parties’ interests.
Conclusions
The primary research question is: What are the similarities and differences in the contractual excuse of force majeure regarding its concept, types, conditions, effects, and enforceability in these two legal systems, especially within the upstream oil and gas industry? A comparative analysis of force majeure in both legal systems reveals that, under English law, the doctrine encompasses not only the impossibility of performance but also other outcomes, such as preventing implementation or modifying obligations. Furthermore, in Common Law jurisdictions, unforeseeability is generally not required to invoke force majeure; it suffices for the claimant to demonstrate that the event was beyond their control and that they could not reasonably prevent or mitigate its effects. Additionally, the requirement for the obligor to notify the other party in writing of a force majeure event is contractual and may be necessary for exemption from liability or simply a procedural condition.
In contrast to many domestic legal systems, which primarily view force majeure as grounds for contract dissolution, international oil and gas contracts assign force majeure broader implications, particularly concerning incurred costs. In sum, while the unpredictability criterion is emphasized in most countries, Common Law systems, such as English law, do not mandate it, reflecting a more flexible approach toward force majeure in international oil and gas contracts.