The Reality of Supply Chains in Light of the Strait of Hormuz Crisis and the 1980 Vienna Convention, Under the Saudi Regime and Islamic Law

The Introduction

Since international trade transactions are fundamentally based on stability and predictability, the ongoing disruptions to supply chains and the accompanying geopolitical tensions have cast a heavy shadow on the very structure of the contract, not only in its implementation but also in its philosophy and objectives..

Risks are no longer mere incidental occurrences that can be absorbed within the traditional framework of contracts; rather, they have become a structural element permeating the contractual relationship from its inception to its full execution. Consequently, it is no longer sufficient to view the international sales contract simply as a tool for transferring ownership in exchange for a price; it has become a system for distributing risks, regulating obligations, and achieving balance between the parties in an environment characterized by uncertainty..

In this context, the United Nations Convention on the International Sale of Goods occupies a prominent position. The Convention on Contractual Rights (CISG) holds a prominent position as an international standard that seeks to unify the provisions of this contract. However, the practical application of this convention, under current circumstances, raises a number of issues, particularly regarding the definition of force majeure, the redistribution of risks, and the extent to which parties are obligated to fulfill their commitments in light of the successive disruptions in supply chains.

The matter becomes even more complex when these provisions are applied to the legal framework in the Kingdom of Saudi Arabia, where legal regulations converge with jurisprudential principles, and the civil transactions system is integrated with the principles of Islamic law. The Kingdom deliberately chose to reserve its position on the section concerning the formation of the contract in the agreement.CISG, thus maintaining its authority in regulating the elements of the contract and the conditions for its formation in accordance with its internal regulations.

Furthermore, determining the applicable law in these contracts does not deviate from a well-established principle in jurisprudence and law, namely, the supremacy of contract, as stipulated by the Rome Convention, where the choice of the contracting parties has the final say. If they remain silent, we revert to the law most closely related to the contract..

Therefore, this study aims to understand the impact of supply chain disruptions on international sales contracts, through an analysis of risk distribution within the framework ofCISG, and a statement of the reality of force majeure in this context, and clarification of the position of the Saudi regime, and grounding all of that in light of jurisprudential rules, with an explanation of the practical effects that arise from this on companies, and the strategic opportunities that appear on the horizon.

(1.1) First: Distribution of Liability for Loss Within the Framework of the International Sales Agreement (CISG)

The regulation of risk of loss in the Convention on the International Sale of Goods (CISG) is based on the fundamental principle that the transfer of risk is not linked to the transfer of ownership, but rather is governed by separate rules that determine when the risk passes from the seller to the buyer. This chapter draws on the overall structure of the Convention, where the issue of risk transfer is addressed in Articles 66–70, while ownership issues are excluded from its scope under Article 4 (Text of the Convention, Chapter on Risk Transfer).

Article 66 stipulates that:

“Loss or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price…”

This text implies that the moment the risk is transferred is the decisive moment in determining who bears the responsibility for the loss, regardless of whether ownership remains with the seller or is transferred.

However, determining this moment is not based on a simple, uniform standard, but rather varies according to the nature of the contract. In transport contracts, the risk transfers upon delivery of the goods to the first carrier, unless delivery is agreed upon at a specific location, in which case the transfer of risk is delayed until delivery at that location. In other cases, the risk transfers upon the buyer’s receipt of the goods or upon their being placed at their disposal if they are delayed in taking possession (Article 69 in its corresponding version in the preparatory draft).

This regulation reveals a legislative approach that links risk to a specific material or legal moment, usually measured by the act of delivery or its equivalent. However, while this framework achieves legal certainty, it implicitly assumes the possibility of precisely determining this moment, an assumption that may face difficulties in the context of modern international trade..

In modern supply chains, where production, transport, and storage are distributed across multiple parties and countries, risk is realistically distributed across multiple stages, rather than being tied to a single moment. However, the legal system remains in CISG is based on assigning this risk to one party at a specific point in time, which may create a gap between economic reality and legal regulation.

Therefore, international trade practice has moved towards using more precise contractual instruments, such as international trade terms. (Incoterms), to detail the moment of risk transfer and link it to specific events, thereby achieving greater consistency between practical reality and the legal system.

(1.2) Second: Exemption From Liability in Case of Obstruction (Article 79 CISG)

Article 79 of the Convention regulates the issue of exemption from liability in the event of an impediment to performance of the obligation, stipulating that the debtor shall be exempt if he proves that the non-performance is due to an impediment:

• Against his will,
• It was not possible to predict it at the time of contracting.
• He was unable to prevent it or avert its effects.

This regulation implies that exemption is based on three interrelated elements: lack of control, unpredictability, and inability to pay.

However, the main problem arises in defining the standard of “unpredictability,” especially given the recurring disruptions in global supply chains. The assessment under the agreement is based on an objective standard that considers what a reasonable person would have expected under the same circumstances at the time the contract was concluded, rather than the debtor’s actual perception.

Therefore, the mere occurrence of some disruptions (such as transport delays) may place them within the realm of the expected, while exceptional events of a wide scope or unusual impact (such as a complete or prolonged outage) remain within the realm of the unexpected.

The matter becomes more complex when the obstacle is indirect, that is, arising from the failure of a third party, such as a supplier or carrier. In this case, it is not enough to prove the existence of the obstacle; it is also necessary to demonstrate its attributability to the debtor and whether the latter took reasonable measures to avoid it or mitigate its effects. It can be inferred from the structure of Article 79 that the debtor is not automatically relieved of liability due to the failure of a third party unless the same conditions for relief are met for that third party.

This implies that the exemption system in The CISG is restrictive in nature, as it does not aim to redistribute economic risks as much as it seeks to identify exceptional cases in which the burden of liability is lifted from the debtor.

(1.3) Third: The Position of the Saudi Regime in Light of Comparison with Article 79 of CISG

The Saudi regulations regarding emergency circumstances and exemption from liability are comparable to those stipulated in the United Nations Convention on the International Sale of Goods. (CISG), particularly within the framework of Article 79, noting the difference in the theoretical basis and legal structure of each.

In Article 79 of the CISG stipulates that a debtor is exempt from liability if they prove that the non-performance was due to an impediment beyond their control, which could not have been foreseen at the time of contracting, prevented, or its effects avoided. It is understood that this exemption is based on the presence of three interrelated elements: the impediment being external, unforeseeability, and the impossibility of preventing or avoiding it.

However, the scope of this exemption remains limited in its effect, as it is generally confined to exemption from liability for compensation, without modifying or automatically terminating the obligation. Furthermore, this provision does not affect the continuation of other contractual obligations, nor does it impact the rules governing the transfer of risk stipulated in Articles 66–70, which remain governed by a separate system that determines the moment when the risk of loss is transferred.

Therefore, Article 79 embodies the system of exemption due to impediment. (Impediment) in the unified law, which is a concept close to the idea of ​​force majeure without being exactly the same as it, as it does not entail the termination of the obligation, but is limited to lifting the liability for non-performance within certain limits.

In contrast, the Saudi system – through the Civil Transactions Law – establishes the principle of the binding nature of contracts, with an exception in cases of emergency circumstances. In such cases, if unforeseen and exceptional general circumstances arise that cause severe hardship to the debtor, the judge may intervene to restore contractual balance by modifying the obligation.

On this basis, both systems recognize unforeseen circumstances as an influential element in contractual liability, but they differ in the legal function of this element.:

• In CISG: The effect of the obstacle is limited to exemption from compensation.
• In the Saudi system, the effect may extend to modifying the obligation itself in order to achieve contractual justice..

It is also noted that the organization CISG remains closer to a restrictive framework that precisely defines exemption cases, without expanding the redistribution of burdens, while the Saudi system is characterized by greater flexibility, as it is not limited to cases of absolute impossibility or obstacle, but extends to cases of extreme exhaustion, allowing for the restoration of doctrinal balance.

(1.4) Fourth: The Jurisprudential Classification of the Issue and its Impact on Risk Distribution

Islamic jurisprudence provides an authentic interpretive framework for issues of risk allocation and exemption from liability, establishing a set of general rules governing financial transactions, most notably::

• The damage is removed
• Hardship brings ease
• Gain with loss

These rules do not merely state principles, but also serve an organizational function in distributing responsibilities and achieving balance.

On the one hand, the principle of “profit and loss” dictates that whoever benefits from the contract bears its consequences, which forms a theoretical basis for distributing risks between the contracting parties.

On the other hand, the principles of “harm must be removed” and “hardship necessitates ease” allow for intervention to alleviate unusual burdens if they exceed acceptable limits, either by modifying the obligation or terminating it as the case may be.

In light of this, the organization can be understood The CISG (Civil Society for the Transfer of Risks) articles 66–70 define the legal point of transfer of liability, while Article 79 provides a limited exception that relieves liability when an exceptional impediment arises. In Islamic jurisprudence—including the Saudi legal system—the issue extends beyond simply determining the moment of transfer of risk; it encompasses addressing its consequences if it results in disproportionate harm, thus ensuring justice.

With regard to supply contracts, Islamic jurisprudence does not necessarily treat them as an independent model, but rather adapts them according to their nature within known contracts, such as Salam or Istisna’, which gives them flexibility in legal and jurisprudential treatment. This adaptation remains subject to the circumstances of each contract, without any prior assumption.

Finally, the element of uncertainty (gharar) stands out as a fundamental criterion for contractual certainty, as jurisprudence requires clarity regarding the subject matter of the contract and the absence of any significant ambiguity, due to its impact on the stability of transactions. In the context of modern supply chains, this requires contractors to precisely define the elements of the contract—particularly delivery terms and risk allocation—so that practical uncertainty does not become a significant deception that threatens the validity or stability of the contract.

1.5 Conclusion

Given the complexity of these issues, arbitration has become the most suitable means of resolving them, due to its flexibility, speed, and technical expertise.

However, arbitration, despite its broad scope, does not negate the importance of precise drafting, as much depends on determining the applicable law and the extent to which it incorporates [specific provisions/information]. CISG or its exclusion, taking into account public order and Sharia law in the Kingdom.

In conclusion, supply chain disruptions are no longer a temporary setback, but a reality that imposes itself on general contract theory. Therefore, reconciling…CISG and the Saudi system, in light of jurisprudential grounding, is not merely a theoretical exercise, but a practical necessity to establish balance, maintain interests, and achieve stability in transactions.

Whoever succeeds in securing their contract, assessing its risks, and keeping these principles in mind, will be closer to safety and more likely to achieve the contract’s objectives in a world that no longer knows certainty.