Drinks companies bring in ‘force majeure’ clauses as a result of Iran war

Following the February airstrikes by the US and Israel on Iran, Sarah Neish discovers how the ongoing conflict is impacting wine businesses, from producers and merchants to closure manufacturers.

When the US and Israel carried out multiple airstrikes across Iran on 28 February, including one that killed Iran’s Supreme Leader Ali Khamenei, it sparked a war that still rages on almost three weeks later.

According to BBC reports, Israeli Defence Minister Israel Katz described the reason for the attacks on 28 February as a “pre-emptive strike” in order to “remove threats against the state of Israel”. Both Israel and the US are opposed to Iran’s nuclear programme, and claim Iran is seeking to develop a nuclear bomb – something Iran has denied.

Speaking to the drinks business this week at ProWein Düsseldorf, Pavel Zahariev, sales director for closures firm Herti UK, said that although there has so far been “no direct impact” on the company “as we don’t source any of our raw materials from that part of the world”, Herti will nonetheless feel the effect of the Iran war “very soon”.

“The main issue is energy, and the rising cost of oil and gas that is needed to produce our products and transport goods,” he said. “Converting aluminium sheets into screwcaps for bottles is a fairly energy-intensive process so there will be a knock-on effect. How long does it take for the price of petrol to go up on the forecourt? Not long.”

He added that “some people are already introducing force majeure clauses” to protect themselves. A force majeure is a provision that excuses a party from performing its obligations due to unforeseeable, uncontrollable, and exceptional events such as natural disasters, wars, pandemics, or government actions. In simple terms, it protects parties from liability when external circumstances make it impossible to meet prior agreements. This might be from the side of someone buying or selling goods including wine, beer, spirits or closures.

Far reaching

The mushrooming situation in Iran is touching many different corners of the globe.

Mike Brown, export sales director for South Australian winery Chateau Tanunda, told db that the Iran war “is not yet disrupting our route to market as most of our wines travel by boat, and we don’t sell a lot of wines to that region”, but stressed that “fuel is a crisis and we don’t have a lot of supply.”

He explained that what is most at risk is the winery’s production.

“The whole thing is disrupted as everything in the winery runs on diesel, which has shot up from AU$1.23 to AU$2.50 in the last three weeks,” he said. “We’re definitely feeling it from a cost perspective right now, and we don’t know how long this is going to go on for.”

Armit Wines, one of the UK’s leading fine wine merchants, agreed that everything hinges on the duration of the war.

“If the conflict against Iran is resolved quickly – in the next week or so, then I think the longer term impact on the global economy won’t be as severe, but if this continues, then I think we have major inflationary challenges,” said managing director Brett Fleming.

“Mortgage rates will change, people’s pension funds will decrease further. And that all generates income which people then won’t spend and that ultimately impacts the hospitality trade again. [That is] speculation, but I think Trump is prepared to pay a high price to get his goal of regime change”.

Oil and gas squeeze

Iran has been accused of carrying out retaliatory attacks on ships in the Gulf, forcing the effective closure of the Strait of Hormuz – a key waterway between the Persian Gulf and the Gulf of Oman, through which about 20% of global oil supply travels. Attacks have also been reported on major oil and gas hubs, including one by Israel on the South Pars gas field (the largest in the world), causing some of the globe’s major oil and gas producers to suspend production. It is these combined factors that have led to the global rise in oil prices; European gas prices surged 6% in the hours immediately following the South Pars strike on Wednesday.

Glass wine bottles, too, are becoming more expensive as the cost of production ramps up, and according to Forbes higher crude prices are putting additional pressure on plastic packaging and films derived from petrochemicals, leading to higher-priced plastic packaging.

“Extra layer of crisis”

For Bordeaux producer Chateau Malartic-Lagraviere, Iran is the final straw on top of a broader geopolitical maelstrom, ranging “from the Ukrainian war to the middle East,” said Séverine Bonnie, head of marketing and communication for the wine estate. “Adding the US tariffs, we are in a profound critical time”.

Bonnie told db: “The Iran crisis is an extra layer to the actual situation. However, the fact that places like Dubai are impacted has also a direct impact on luxury goods, wine included.”

The crisis has already led to one major drinks event in the region being cancelled, with Hugo Goncalves, co-founder of The Gulf Bar Show, revealing that “the disruption to the regional airspace led us to make the difficult but necessary decision to postpone the Gulf Bar Show to 4-5 May”.

He explained that “while the timing was far from ideal, the response from our exhibitors and the wider bar community has been remarkable, and it only reinforces how resilient and united this industry is in the Gulf region”.

In Lebanon, Gaston Hochar, owner of Chateau Musar, which grows grapes in the high-altitude Bekaa Valley, added that shipments to the UAE had been entirely halted. “The Iran war is not affecting our operations yet. But the war in South Lebanon, which could be stated as an extension of the Iran war, can affect producers depending on their location. All local sales have nearly come to a complete stop, as well as shipments/sales to the UAE,” he confirmed.

Shipment disruption

A statement shared with db by logistics company Kuehne+Nagel appeared to confirm the disruption to shipments, as well as increased transport costs. “With certain air and sea routes restricted or being rerouted, carriers are extending transit times,” said Horst Mueller, global head of VinLog, Kuehne+Nagel’s beverage specialist.

“Furthermore, additional surcharges can be introduced driven by challenges in bunker sourcing, the increasing crude prices, and the higher fuel consumption due to the extended routing. These increased transport costs and slower shipments is putting some pressure on drinks supply chains, particularly on routes connected to the affected regions. We are staying closely aligned with carriers and our partners to minimize disruption, and are supporting customers with alternative routing options where needed”.

It is not only wine production and logistics that are at stake with beer prices set to soar as a result of the Iran conflict.“Those increases then move through to pubs and bars, which are also highly exposed to rising energy costs through heating, lighting and refrigeration,” Molly Monks, insolvency expert at Parker Walsh, told db. “Because margins are already tight across the sector, it does not take long for those pressures to translate into higher prices at the bar.”

 

 

 

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