Three weeks of war. One closed strait. And now, a sovereign government telling some of the world’s largest oil companies that the deals are off.

Iraq’s oil ministry declared force majeure on all oilfields operated by foreign companies, according to a ministry letter dated March 17 and first reported by Reuters on March 20. The legal mechanism is blunt: Iraq is invoking an extraordinary circumstance — the effective closure of the Strait of Hormuz by Iranian military operations — to suspend its contractual obligations to international operators. The companies affected include the likes of BP, ExxonMobil, TotalEnergies, and China National Petroleum Corporation, all of which hold technical service agreements to develop Iraqi fields.

This is not a renegotiation. It is a unilateral declaration that the contracts, as written, cannot be performed.

The Numbers Behind the Shutdown

The production collapse is staggering. Basra Oil Company, which accounts for the bulk of Iraq’s output, has slashed production from 3.3 million barrels per day to roughly 900,000 bpd, according to oil ministry sources cited by Reuters. The remaining volumes are being redirected to domestic refining. Iraq’s state marketing arm, SOMO, said it stood ready to load crude at its southern terminals — but no international partner could nominate a tanker to collect it. Storage capacity has hit its limits.

Iraq depends on crude sales for more than 90 percent of government revenue. Nearly all public spending — salaries, pensions, infrastructure — flows from oil receipts. A sustained export halt does not merely dent the budget; it threatens the state’s ability to function.

From Price Spike to Legal Crisis

Until this week, the war’s economic damage was largely a story about prices. Brent crude briefly topped $119 per barrel on March 20, up from roughly $70 before the conflict began on February 28, before receding amid volatile swings. Markets have added an estimated $40-per-barrel geopolitical risk premium above what fundamentals would normally dictate. Stock exchanges from Seoul to London have been whipsawed by daily developments.

But Iraq’s force majeure shifts the damage from the trading floor to the legal department. Technical service agreements — the contract model Iraq adopted from 2009 onward — pay foreign operators a per-barrel fee for extraction while Iraq retains ownership of the crude. When the crude cannot move, the fee structure collapses. Force majeure suspends these payment obligations and, if the disruption persists, could open the door to contract termination.

For the international majors, billions of dollars in Iraqi investments are now in legal limbo. BP agreed to invest up to $25 billion to rehabilitate oil and gas fields in Kirkuk as recently as February 2025. TotalEnergies greenlit full-field development of the Ratawi field in southern Iraq last September. ExxonMobil reached a non-binding agreement to develop the Majnoon oilfield. Every one of these commitments now sits under a cloud.

The Fallout Is Already Spreading

Iraq’s declaration is the most consequential single act, but the pattern is wider. Spain announced a €5 billion emergency energy relief package on March 20, cutting VAT on fuel from 21 to 10 percent and slashing electricity taxes by 60 percent to shield 20 million households from surging costs. Diesel prices in Spain have climbed 31 percent since late February.

Airlines are bleeding. United Airlines estimates an additional $11 billion in annual fuel costs at current prices. Delta, American, and Alaska Airlines have suspended or delayed transatlantic routes to Athens and Madrid, citing safety reviews tied to the conflict. Nearly 12,000 passengers were affected by Delta’s suspensions alone.

The Strait of Hormuz handles roughly 20 percent of global seaborne oil and liquefied natural gas flows. Iran’s Islamic Revolutionary Guard Corps has declared that “not a litre of oil” will pass through while hostilities continue. Global strategic reserves have released 400 million barrels to cushion the blow — a stopgap, not a solution.

What Force Majeure Actually Means

Force majeure is not a euphemism. It is a specific legal doctrine that excuses a party from contractual performance when an unforeseeable event beyond its control makes fulfillment impossible. War qualifies. A closed shipping lane qualifies. But the doctrine is not self-executing — the other party can challenge whether the conditions are truly met, and disputes over force majeure declarations routinely end in international arbitration.

Iraq is betting that no arbitration panel will fault a government for failing to export oil through a strait under active military blockade. That bet is probably correct. But the precedent matters: if Hormuz remains closed for weeks or months, force majeure becomes the legal framework through which the entire Gulf oil trade unravels, contract by contract.

The war started with missiles. The economic damage is now being done with letters from the oil ministry.

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