1. The “price of oil” quoted in the news is usually a “paper” price: the current trading price of the futures contract for the earliest delivery month still being traded (the “front-month” contract). Since the disruption to shipping through the Strait of Hormuz began, however, the price that refiners and other buyers pay for a physical cargo available for prompt loading has repeatedly been far above the futures price. This divergence between the physical and paper prices for oil cargoes has been particularly marked following upturns in hostilities.
2. These upturns in hostilities have led, on occasion, to declarations of force majeure by the sellers of oil cargoes. However, there is at least a theoretical possibility that any such declaration of force majeure may be driven by a desire to obtain a larger profit rather than an inability to deliver: Sellers committed to deliver cargoes at contract prices below the prevailing physical price have a powerful incentive to divert them to higher-paying buyers with an urgent need for a physical cargo available for prompt loading. Buyers, by contrast, have an equally powerful incentive to hold a seller to the original bargain.
3. This article considers the factors that may determine whether a declaration of force majeure will succeed and how the resulting disputes are likely to unfold in arbitration.
I. INTRODUCTION
4. Since the outbreak of hostilities involving Iran on February 28, 2026, the oil market has repeatedly separated into two prices. The first is the “paper” price: most often the price of the front-month Brent futures contract traded on the Intercontinental Exchange. This is the figure usually quoted as “the price of oil.”1 The second is the “physical” price: the price paid in the “spot” market for a cargo available for prompt loading. The most widely used measure of that price is “Dated Brent,” a daily benchmark that price reporting agencies publish based on bids, offers and trades for physical cargoes.2
5. In ordinary conditions, the two prices move closely together. In 2026, they have not. In early April, Dated Brent reached $141.36 per barrel, more than $32 above the Brent futures contract for June delivery.3 After a midyear easing, the gap reopened in September, when attacks on export infrastructure in Saudi Arabia pushed Dated Brent to as high as $132 per barrel, a premium of around $23 above the front-month Brent futures contract, which peaked at $109 per barrel on September 15.4 In early October, Dated Brent reached a record of around $154 per barrel, roughly $45 above front-month Brent futures,5 although that premium has since narrowed.6
6. Where this divergence arises, it creates a powerful commercial incentive. A seller bound to deliver under a long-term supply agreement, a term contract or a forward sale of a single cargo, at a price fixed by reference to an earlier market or a futures-linked formula, may earn a substantial premium by selling the same barrels into the spot market at the prevailing physical price instead. At the same time, the disruption that drives the divergence may genuinely impede performance. The question for sellers, buyers and their advisors is when force majeure provisions may provide relief. This article considers that question under English law, which governs a large share of international oil trading.
II. THE MARKET MECHANICS: WHY “PAPER” AND “PHYSICAL” DIVERGE
7. Futures contracts such as ICE Brent are standardized, exchange-traded instruments that reference oil for delivery in a future month. Dated Brent, by contrast, reflects the price of physical cargoes loading within a near-term window, typically 10 to 30 days ahead. When supply is disrupted suddenly, the shortage bites hardest in the prompt physical market. The futures curve, meanwhile, prices in an expectation that the disruption will ease. A shortage of prompt physical supply may therefore push the futures curve into “backwardation,” in which contracts for earlier delivery months trade above those for later months.7 The opposite structure, in which later months trade above earlier months, is known as “contango.”
8. The incentive for sellers to divert contracted cargoes into the spot market is not without precedent. During the 2022 gas crisis, commentators documented a similar pattern in long-term liquefied natural gas (LNG) supply: Some sellers failed to deliver contracted cargoes, which were reportedly sold on the spot market instead.8 The crude oil market, which is far larger than the LNG market, presents the same incentive in 2026.
III. FORCE MAJEURE UNDER ENGLISH LAW AFTER RTI v MUR SHIPPING
9. Under English law, force majeure is a creature of contract. It is available only where the contract contains a clause defining the qualifying events and their consequences for contractual performance. The precise wording of the clause is therefore critical. The party invoking the clause bears the burden of proving that it applies. In practice, that party must typically establish each of the following elements, although the clause itself may add to, remove or modify any of them:
a. A qualifying event: The event must fall within the clause’s definition or list of qualifying events, as properly construed. War, blockade, embargo and governmental action commonly appear in such clauses, and the disruption in and around the Strait of Hormuz may well qualify in many contracts. A rise in market prices, by contrast, will rarely be a listed event. Some force majeure clauses also require the event to have been “unforeseeable” at the time of contracting. Under such a clause, a party relying on a contract concluded after the hostilities began may face a further hurdle, although an escalation in the scale or duration of the disruption could, in some circumstances, still be considered unforeseeable.
b. Effect on performance: The event must have the effect the clause specifies, whether that is to prevent performance or merely to hinder or delay it. Clauses that require the prevention of performance set a high bar; additional cost or reduced profitability will not ordinarily suffice.
c. Control: Most clauses require that the event be outside the reasonable control of the party invoking it, so a party will generally be unable to rely on a state of affairs of its own making, including a supply shortfall created by its own decision to sell contracted barrels elsewhere.
d. Causation: The event must have caused the failure to perform. Depending on the clause, it may need to be the sole effective cause, and the invoking party may need to show that but for the event, it would have been ready and willing to perform.
e. Reasonable endeavors: The effects of the event must not have been avoidable by the exercise of reasonable endeavors. Where the clause is silent, it will generally be interpreted as containing such a requirement.
f. Notice and procedure: Any contractual notice requirements must be satisfied, and these are often drafted as conditions precedent to relief.
10. Even where each element is made out, the consequences depend on the clause and on the type of contract. Clauses commonly suspend the affected obligations while the event continues and often permit termination if it persists beyond a specified period. Under a long-term supply agreement or term contract, the seller will usually be excused only from the affected deliveries, and its obligations for the remaining deliveries will continue. Under a contract for the sale of a single cargo, by contrast, suspension or termination may in substance release the seller from the whole bargain. Establishing a qualifying event is only the first step. In the scenario considered here, the outcome is likely to turn on the other elements, particularly control, causation and reasonable endeavors.
11. The UK Supreme Court addressed the reasonable endeavors requirement in RTI Ltd v MUR Shipping BV [2024] UKSC 18. Under a contract of affreightment, a charterer had agreed to pay a shipowner in US dollars.9 The force majeure clause covered “restrictions on monetary transfers and exchanges,” but only where the event “cannot be overcome by reasonable endeavors from the Party affected.”10 When the United States sanctioned the charterer’s parent company in 2018, timely dollar payments were likely to be delayed and the shipowner invoked force majeure and suspended performance.11 The charterer argued that the event could have been overcome, because it had offered to pay in euros and to bear any additional costs or exchange rate losses.12 The arbitral tribunal and the majority of the Court of Appeal agreed, but the Supreme Court did not.13 It held that, absent clear wording, reasonable endeavors are directed at securing performance of the contract on its terms, so the affected party need not accept an offer of noncontractual performance. The shipowner was therefore entitled to rely on the force majeure clause.14
12. The Court’s reasoning cuts both ways in the oil context. Absent clear wording, a buyer may find it difficult to defeat a seller’s reliance on force majeure merely by offering to accept a different grade, load port or price mechanism that the contract does not provide for.15 Conversely, where the evidence shows that a seller could, with reasonable endeavors, have delivered conforming barrels on the contract’s terms but instead sold them elsewhere at a higher price, the event may be found not to have been the effective cause of the nondelivery, in which case the clause may not protect the seller.
13. Causation was also central to the Court of Appeal’s decision in Classic Maritime Inc v Limbungan Makmur Sdn Bhd [2019] EWCA Civ 1102, which shows that, depending on its wording, a force majeure clause may require more than proof that a qualifying event occurred. A charterer under a long-term contract of affreightment relied on the fact that a dam burst at its supplier’s mine to excuse its failure to supply cargoes.16 The trial judge found that the charterer would not have been able and willing to supply those cargoes even without the dam burst.17 The clause excused a failure to supply cargo only where it resulted from one of the events listed in the clause and the event directly affected the party’s performance.18 The Court of Appeal held that the clause’s causal language (“resulting from”) required the charterer to show that but for the event, it would have performed. Because it could not, the clause did not apply.19 Although the clause was described as an exceptions clause rather than a force majeure clause, Males LJ observed that “what matters is not the label but the content of the tin.”20 Whether a “but for” requirement applies will therefore depend on the precise wording of the clause.
IV. THE CONSEQUENCES OF AN UNSUCCESSFUL FORCE MAJEURE DECLARATION
14. Where a party declares force majeure and does not perform and the declaration is later found to be invalid, the nonperformance may well constitute a breach of contract, and the damages awarded for that breach can be significant. Under Section 51(3) of the Sale of Goods Act 1979, where there is an available market, damages for a seller’s nondelivery are prima facie the difference between the contract price and the market price at the time the goods should have been delivered (the market-difference measure),21 although the appropriate measure in any given case will depend on the contract and the facts. Where that measure applies, a successful claim may substantially erode, or even eliminate, any commercial gain the seller obtained by selling those barrels to a third party at the higher “physical” price.
15. The contract’s exclusion and limitation clauses will also be relevant, although their effect will depend on their precise wording. Many supply agreements exclude liability for “loss of profit” or for “indirect or consequential loss.” However, English courts have tended to treat market-difference damages as a direct loss arising naturally from nondelivery rather than as lost profit or consequential loss, and have not always treated such exclusions as reaching a market-difference claim.22
16. The contract may, however, contain its own regime for compensating missed deliveries, which may displace or limit the market-difference measure. Some long-term supply agreements, for example, cap compensation for a missed cargo at a percentage of the contract price, or provide an exclusive compensation mechanism for under-deliveries. In Scottish Power UK plc v BP Exploration Operating Co Ltd, for example, the court held that a gas supply agreement’s “Default Gas” mechanism (under which undelivered gas was to be supplied later at a reduced price) was the buyer’s exclusive remedy for under-deliveries of gas that it had properly nominated, so that the buyer could not, to that extent, recover damages measured by the cost of replacement gas.23 Parties to a dispute will therefore want to examine the contract as a whole to determine whether, and to what extent, the market-difference measure applies, and parties negotiating new contracts may wish to consider whether to address the measure of compensation for missed deliveries expressly.
V. CONCLUSION
17. Force majeure turns on whether the contractual elements are satisfied; therefore, the fact that a declaration may be driven by a desire to obtain a larger profit from an increased “physical” price is, in itself, unlikely to be relevant. Where shipping and supply have been genuinely disrupted, the key question under English law is what the parties agreed to in the force majeure clause itself. Depending on the wording of the clause, the invoking party may need to show not only that a qualifying event occurred but also that the event was beyond its reasonable control, that it caused the failure to perform, and that its effects could not have been avoided by reasonable endeavors directed at performing the contract on its terms. The outcome will therefore depend on the precise wording of the force majeure clause and other provisions of the contract, as well as on the contemporaneous evidence of what the parties could have done and what they chose to do.
Footnotes:
1. US Energy Information Administration, “Brent crude oil spot prices surge past futures price in April,” Today in Energy (April 24, 2026), https://www.eia.gov/todayinenergy/detail.php?id=67544.
2. Ibid.
3. CNBC, “Brent oil spot price for actual cargo soars to $141, highest level since 2008 financial crisis” (April 2, 2026), https://www.cnbc.com/2026/04/02/dated-brent-oil-price-actual-cargo-highest-level-2008.html.
4. US Energy Information Administration, “Crude oil prices and refinery margins generally increased throughout [3Q26],” Today in Energy (October 5, 2026), https://www.eia.gov/todayinenergy/detail.php?id=68245 (Brent front-month futures peaked at $109/b on September 15, while spot prices reached as high as $132/b); see also National Bank of Kuwait, Oil Brief (September 24, 2026), https://www.nbk.com/dam/jcr:6a82d86c-ec8f-412e-bf46-358e8aa5e26e/NBKOilBrief20260924E.pdf (Dated Brent (Platts) at $132/bbl).
5. Nikkei Asia, “Record price for physical Brent shows how badly the world wants oil now” (October 12, 2026), https://asia.nikkei.com/business/energy/record-price-for-physical-brent-shows-how-badly-the-world-wants-oil-now.
6. Yahoo Finance, “Physical Oil Just Went From a Bidding War to a Fire Sale” (November 4, 2026), https://finance.yahoo.com/energy/articles/physical-oil-just-went-bidding-160410193.html.
7. CNBC, “The oil market is in ‘backwardation’ — what it means for energy markets” (March 26, 2026), https://www.cnbc.com/2026/03/26/market-trends-oil-futures-backwardation.html.
8. A. Ason, International Gas Contracts, Oxford Institute for Energy Studies Paper NG 175 (November 2022), p. 7, https://www.oxfordenergy.org/wpcms/wp-content/uploads/2022/11/International-Gas-Contracts.pdf (noting “claimed instances of ‘missed’ long-term LNG cargoes, which are understood to have been sold in the spot market instead by sellers taking advantage of arbitrage opportunities during spot price spikes”).
9. RTI Ltd v MUR Shipping BV [2024] UKSC 18, [3].
10. Ibid., [4] (cl. 36.3(c)–(d)).
11. Ibid., [5]–[7], [9].
12. Ibid., [7].
13. Ibid., [11]–[12] (tribunal), [18]–[21] (Court of Appeal majority), [103].
14. Ibid., [37]–[38], [44]–[46], [48].
15. Ibid., [38]–[39]; and see Arnold LJ’s example (endorsed in the result) of a vessel bound for a strike-bound port A, where the owner need not accept diversion to port B: ibid., [22], [103].
16. Classic Maritime Inc v Limbungan Makmur Sdn Bhd [2019] EWCA Civ 1102, [5]–[8], [11].
17. Ibid., [9]–[10] (citing Classic Maritime Inc v Limbungan Makmur Sdn Bhd [2018] EWHC 2389 (Comm), [110]).
18. Ibid., [11] (cl. 32), [13].
19. Ibid., [45], [48], [90]; see also [20].
21. Sale of Goods Act 1979, s. 51(3).
22. See, e.g., Sale of Goods Act 1979, s. 51(2)–(3) (damages for nondelivery are the loss “directly and naturally resulting, in the ordinary course of events,” from the breach, which, where there is an available market, is prima facie measured by the market difference); Glencore Energy UK Ltd v Cirrus Oil Services Ltd [2014] EWHC 87 (Comm) (exclusion of “loss of anticipated profits” did not exclude a market-difference claim for nonacceptance of a crude oil cargo); Scottish Power UK plc v BP Exploration Operating Co Ltd [2015] EWHC 2658 (Comm) (exclusion of liability for loss of use, profit and production did not exclude a buyer’s claim for the additional cost of buying replacement gas, because that was the normal measure of damages for nondelivery), aff’d [2016] EWCA Civ 1043.
23. Scottish Power UK plc v BP Exploration Operating Co Ltd [2015] EWHC 2658 (Comm), [20], [129]–[130], [159], [173]–[174], [179]–[182], [193] (exclusion of liability for “loss of use, profits, contracts, production or revenue” did not exclude the buyer’s claim for the cost of buying replacement gas, which represented the normal measure of loss), aff’d [2016] EWCA Civ 1043.
