Fears of force majeure spread across industries as Iran war continues

Factory chimneys emit smoke at a petrochemical complex in Yeosu, South Jeolla Province, Monday. Yonhap

A growing number of Korean companies have declared or warned of force majeure, as the ongoing war between the United States, Israel and Iran has disrupted cargo shipments through the Strait of Hormuz.

While petrochemical firms are struggling with a naphtha shortage, shipping and aviation companies have suspended operations on Middle Eastern routes.

Force majeure is a term used in contracts to free parties from liability or obligation when an extraordinary event or circumstance beyond their control prevents them from fulfilling contractual duties.

On March 4, Yeochun NCC became Korea’s first petrochemical firm to declare force majeure since the war broke out.

The nation’s third-largest ethylene producer informed its customers of delays in product supply, saying the blockade of the Strait of Hormuz had postponed deliveries of naphtha expected to arrive this month.

“The company is facing a critical disruption in the procurement of raw materials due to the sudden and drastic escalation of geopolitical tensions in the Middle East,” the joint venture between Hanwha Solutions and DL Chemical said in a letter to customers.

Following the production setback at Yeochun NCC, Hanwha Solutions also warned of the possibility of force majeure, notifying customers that it may delay the supply of polyolefin, which uses ethylene as a raw material.

Earlier this week, LG Chem and Lotte Chemical — two bigger players in the Korean ethylene market — warned customers of the possibility of force majeure.

LG Chem specifically cited difficulties in fulfilling its agreement to export dioctyl terephthalate, noting the limited supply of alcohol needed to produce plasticizers following the suspension of naphtha and propylene supplies.

The Thai-flagged cargo ship Mayuree Naree is on fire after being hit by Iranian missiles in the Strait of Hormuz, Wednesday, in this handout photo released by the Royal Thai Navy. EPA-Yonhap

In the shipping industry, HMM stopped accepting new bookings for shipments loaded from or destined for ports in the Arabian Gulf, Red Sea or Horn of Africa. The company also began charging $1,000 per container to detour the affected routes.

“Due to the outbreak of war, hostilities, the de facto closure and/or the targeting of commercial vessels in the vicinity of the Strait of Hormuz, it has become unsafe for the vessel to proceed to ports in the Arabian Gulf/Red Sea/Horn of Africa where there is a serious and imminent risk of danger,” Korea’s largest container shipping firm said Wednesday in a letter to customers.

Korean Air extended the suspension of its Incheon-Dubai flights through March 28, though the nation’s largest air carrier has not declared force majeure.