Force Majeure and Trade Risks in Grain Imports

In an exclusive interview with Negashteh Magazine, Dr. Behnam Khatami, Founder and Managing Partner at Nami Associates, discusses the complex legal and commercial risks facing Iranian importers of grain and essential goods, particularly during geopolitical crises and under international sanctions.

He highlights a multi-layered risk profile: disrupted shipping routes, volatile freight and insurance rates, currency transfer restrictions, and counterparty defaults. On top of that, political risks — such as sanctions and tightening compliance regimes — significantly limit access to critical banking services like financing and letters of credit.

While most sanctions regimes, including those by the UN and EU, offer clear exemptions for foodstuffs and agricultural commodities, over-compliance by international banks and insurers remains a major obstacle. To address this, importers must carefully structure their contracts to clearly demonstrate the humanitarian nature of grain cargoes.

Common Legal Pitfalls in Trade Contracts

According to Dr. Khatami, many Iranian importers underestimate the importance of governing law and dispute resolution clauses. While standard mechanisms like GAFTA or FOSFA arbitration are widely used, they can pose serious enforcement risks in Iran, especially with perishable goods.

He also points out that force majeure and hardship clauses are often adopted in boilerplate form and fail to account for disruptions like sanctions-related banking issues or export bans. Furthermore, importers frequently neglect quality control and inspection procedures, leaving themselves exposed if substandard cargo is tendered. Dr. Khatami advises conducting pre-shipment inspections, especially when risk transfers at the port of origin, to maintain a strong legal position and avoid disputes.

Risk Mitigation and Enhancing Negotiation Power

To manage trade with high-risk countries, Dr. Khatami recommends a three-pronged approach:

• Contractual discipline, with robust clauses on sanctions, force majeure, quality, and delivery
• Diversification of suppliers and shipping routes to reduce reliance on single sources
• Proper risk allocation, through political and war risk insurance or shipping terms like CIP, which place responsibility on the seller until discharge port

He notes that both GAFTA and FOSFA frameworks remain suitable for Iranian traders. GAFTA is particularly well-suited for cereals like wheat, barley, and corn, while FOSFA applies to oilseeds and fats.

Insurance and Force Majeure in Crisis Conditions

International insurance — including cargo, war, and political risk coverage — plays a vital role in protecting trade flows. However, due to sanctions, Iranian traders often rely on domestic underwriters whose coverage lacks international enforceability.

Force majeure clauses, though essential, are frequently vague. Dr. Khatami stresses the need for precise drafting, especially to clarify whether sanctions, banking restrictions, or export bans qualify as force majeure events. He identifies four commonly overlooked aspects:

• Clear timeline for invoking force majeure
• Formal procedures for notification
• Distinction between suspension and termination of obligations
• Allocation of demurrage and storage costs during disruptions

Practical Recommendations for Iranian Importers

To enhance their negotiating position and reduce risk, Dr. Khatami advises Iranian companies to:

• Draft tailored contracts, avoiding vague templates and addressing sanctions and banking delays directly
• Implement strong inspection mechanisms, aligned with shipping terms and risk allocation
• Build credibility, by working with reputable inspection companies and documenting compliance with humanitarian exemptions
• Diversify suppliers geographically, to reduce dependency on any one source
• Reconsider dispute resolution clauses, as international arbitration may not be ideal for perishable goods where quick enforcement is crucial