The Law Of War - When The Formula No Longer Fits: Gas Price Review In Times Of Conflict

When conflict disrupts global gas markets, parties commonly turn first to force majeure provisions to navigate pressing short term supply and demand issues. But what happens to the contract price where the agreed pricing formula in long-term gas supply agreements and liquefied natural gas (LNG) sale and purchase agreements (SPAs) no longer reflects sustained and longer-term market conditions?

LNG SPAs are typically priced by reference to formulas agreed years in advance, often calibrated to a different market environment. Where market disruption is structural rather than temporary, those formulas may become disconnected from prevailing market value. This is where price review provisions assume particular importance.

Price review clauses provide a mechanism for revisiting pricing arrangements where market conditions have materially diverged from those existing at the time of contracting. These provisions are likely to be of immediate relevance in the current environment, particularly in oil-indexed LNG SPAs.

History shows that sustained geopolitical conflict does more than cause temporary disruption: it can fundamentally reshape the structural pricing of energy markets, rendering agreed contract formulas economically unviable and triggering waves of price review activity. Most recently, the Russian invasion of Ukraine in February 2022 pushed European gas prices above €200/MWh, prompted arbitration proceedings against Gazprom by Naftogaz,¹ Uniper,² and RWE,³ and accelerated a broader wave of price review proceedings across Asian LNG markets.⁴

The current conflict involving Iran and the reported effective closure of the Strait of Hormuz-through which approximately 20% of global oil supply transits-since early March 2026 has produced a further and acute dislocation: Brent crude surpassed US$110/bbl for the first time in four years, the Dubai crude benchmark (a key reference in many Asian oil-indexed LNG contracts) surged 76% from pre-war levels, and European TTF gas prices nearly doubled to over €60/MWh by mid-March 2026.⁵

Iran and the USA agreed a two-week ceasefire on April 7, 2026, but failed to agree to a peace deal in subsequent talks, resulting in the USA setting up a blockade of the Strait of Hormuz from April 13 onwards. With settlement talks between the USA and Iran repeatedly starting and stalling in the meantime, the price of oil remains highly volatile.

In the sections that follow, we examine the contractual mechanisms available to parties seeking to address pricing misalignment in long-term LNG SPAs and suggest practical guidance for parties considering whether to initiate a review.

Pricing Divergence in LNG Contracts

The extent to which gas contracts are exposed to pricing misalignment varies by region and contract type. Understanding the applicable mechanism is a starting point for any price review analysis.

Hub-based pricing. Natural gas is priced by supply and demand at trading hubs connected to the physical locations where, for example, pipelines interconnect and gas is traded. Common European gas hubs are the Dutch Title Transfer Facility (TTF) and the UK National Balancing Point (NBP). In the United States, Henry Hub indexation plays a similar role to hub-based pricing in Europe, providing a gas benchmark aligned to domestic supply and demand dynamics. In Asia, the Japan Korea Marker (JKM) is a primary LNG spot benchmark, though it is a price index rather than a physical hub. Unlike oil-linked pricing (discussed below), hub-based pricing is regarded as providing transparency and liquidity to the gas market, allowing buyers and sellers to transact on a short-term basis rather than being locked into long-term fixed formulas.

Oil-linked gas pricing. Oil-linked gas contracts, often called oil indexation, tie the gas pricing formula to one or more crude oil benchmarks (e.g., Brent). This model developed because historically gas competed with oil as a fuel and the market required predictability. Despite a move towards hub-based pricing, oil-linked gas pricing remains prevalent in Asia, the world’s dominant region for LNG imports.

While this dynamic is particularly pronounced in Asia, it is not confined to that region. Oil-linked pricing persists in parts of the Middle East, Africa, and Latin America. Moreover, even hub-indexed contracts may be tested where the relevant benchmark itself becomes dislocated from underlying physical market conditions.

Types of Price Review Mechanism and Why the Distinction Matters

Gas contracts typically provide for price review through two principal mechanisms: periodic review and trigger-based review.

Periodic (Time-Based) Price Review. Periodic review provisions allow either party to request a revision of the pricing formula at defined contractual intervals, often every three to five years (and in some legacy contracts, longer). This is the predominant price review mechanism in long-term LNG SPAs serving Asian markets. No triggering event is required; the contractual right arises at specified intervals. For parties facing sustained divergence between contract and market pricing, a periodic review may provide the most straightforward route to adjustment. However, the limited flexibility inherent in periodic mechanisms can leave parties exposed to sustained pricing misalignment during periods of severe market disruption, particularly if the next review window is years away.

Trigger-Based (Market Circumstances) Price Review. Trigger-based review provisions – more commonly found in European gas supply contracts – allow a party to initiate a review outside the periodic cycle where specified conditions are met. These clauses may require a “substantial” or “material” change in market circumstances that was not reasonably foreseeable at the time of contracting and that causes a significant divergence between the contract price and market value. As these clauses are not tied to a fixed timetable, they offer greater responsiveness to market disruptions, as parties do not have to wait for the next contractual review window.

The threshold for invoking such provisions, however, is typically high. Arbitral practice suggests that the relevant change must be significant, sustained, and not merely a reflection of ordinary market fluctuation. Temporary price volatility may not suffice. For instance, in response to the Russia-Ukraine war, European buyers filed successive gas price review arbitrations (invoking trigger-based mechanisms) and were required to demonstrate an enduring shift in market conditions following the 2022 invasion.⁶ Regarding the current conflict between the US and Iran, should the ceasefire hold and transition into an end to the conflict; a party seeking to invoke a trigger-based review may face the argument that the price shock, however, severe, was a temporary dislocation rather than a structural shift the clause requires. Therefore, parties seeking to invoke a trigger-based review should be in a position to demonstrate not only that conditions have changed, but that the change is expected to persist over a meaningful period.

Practical Considerations for Parties

The price review processes are forward-looking and often both time-sensitive and time-intensive. Early assessment is therefore critical. The following steps provide a basis for such an assessment:

1. Identify contractual review windows. Parties should identify whether periodic review windows are approaching or already open under their contracts. Where such a window is available, it may provide an opportunity to seek adjustment without the need to satisfy a trigger-based threshold.
2. Assess trigger-based thresholds. Where no periodic review is available, parties should assess whether the requirements of any trigger-based mechanism have been met. This analysis will typically focus on whether the relevant market change can properly be characterised as structural and enduring, rather than temporary. Contemporary market data, industry reports, and statements from market participants may be relevant in this regard.
3. Consider the appropriate comparable contracts. The LNG price review clause may require a comparability exercise, benchmarking the contract price against comparable arm's-length transactions. In the current environment, parties face the novel challenge of identifying true comparables where long-term contracts are suspended or subject to force majeure declarations. The reduced pool of active contracts may distort the comparability analysis and is likely to be a significant source of contention in price review disputes.
4. Comply strictly with notice provisions. Price review clauses commonly prescribe detailed procedural requirements, including formal notice within defined time limits. Compliance with contractual notice provisions is essential. Missing a notice deadline or failing to follow prescribed procedures may preclude reliance on the clause.
5. Prepare for review process. Whether the mechanism for the review requires negotiation within a contractual framework, expert determination, or arbitration (or a combination), the process is typically technically complex, commercially sensitive, and time-consuming. Early engagement of appropriate legal and economic expertise is therefore advisable.

Final Considerations

Periods of geopolitical conflict increasingly involve disruption to energy infrastructure and supply chains, and so can have a profound impact on gas markets. Long-term gas contracts are necessarily built on assumptions about market conditions that may not hold over time.

Where those assumptions no longer reflect reality, price review provisions provide a contractual mechanism for recalibrating the pricing framework. The extent to which such provisions can be relied upon will depend on the contractual language, assessing and meeting the evidentiary threshold, and following the practical timelines involved in pursuing a review.

Footnotes

1. National Joint Stock Company Naftogaz of Ukraine v. Public Joint Stock Company Gazprom (III), ICC Case No. 27245/GL.

2. Uniper Global Commodities SE and METHA – Methanhandel GmbH v. Gazprom Export, PCA Case No. 2023-02 (AA895).

3. RWE AG v. Gazprom Export LLC (II) https://globalarbitrationreview.com/article/rwe-reports-win-against-gazprom (last accessed 31 March 2026).

4. IEA, Russia's War on Ukraine, https://www.iea.org/topics/russias-war-on-ukraine (last accessed 31 March 2026).

5. IEA, The Middle East and Global Energy Markets, iea.org (continuously updated, last accessed 31 March 2026); IEA, Oil Market Report – March 2026 (12 March 2026), available at iea.org/reports/oil-market-report-march-2026

6. Agnieszka Ason, International Gas Contracts, Oxford Institute for Energy Studies, OIES Paper NG 175 (November 2022), https://www.oxfordenergy.org/publications/international-gas-contracts/ (noting that the Russia-Ukraine war “presents itself as the most critical and immediate challenge for long-term gas and LNG supply contracts” and that price review provisions became urgently relevant following the conflict) (last accessed 31 March 2026)