When a major energy exporter invokes force majeure during a regional war, the accounting questions become much more difficult than the legal headlines suggest. In the current environment of war involving Iran and severe disruption risk across Gulf energy routes, the practical issue is not merely whether cargoes move or do not move. The deeper issue is how accountants should treat contracts that are legally suspended but not cancelled. A suspended contract can remain alive in law while becoming economically uncertain in practice. That creates tension in financial reporting between legal form, commercial reality, and accounting recognition rules.
The central question is this: if exports are delayed under force majeure, and the seller has already received payment or advance consideration, should that amount remain as unearned revenue, be reclassified as a refund or settlement obligation, or in some cases become revenue later through breakage or expiry of contractual rights? At the same time, if buyers threaten arbitration, damages, or cover claims because supply was interrupted, when does the seller recognise a contingent liability or provision?
The accounting answer under both IFRS and US GAAP is generally more conservative than many commercial teams expect. If the contract is merely suspended and no cargo has been delivered, revenue is usually not recognised during the suspension because no performance obligation has been satisfied. Any cash received for undelivered exports is usually retained as a contract liability, often described in practice as unearned or deferred revenue, until one of several things happens: the goods are eventually delivered, the parties formally modify the contract, the contract is terminated with refund or settlement, or the seller becomes entitled to retain the consideration without further performance.
This article explains how that works in depth. It draws on the same accounting reasoning that would govern an LNG or oil exporter facing force majeure in the present wartime environment: contract existence, suspension versus modification, unearned revenue, refund obligations, contingent liabilities, credit risk, onerous contracts, hedge accounting disruption, and disclosure obligations at period end.
The Accounting Starting Point: Force Majeure Does Not Automatically Create Revenue or a Loss
Force majeure is primarily a legal and contractual doctrine, not an accounting category. It may excuse or suspend performance if extraordinary events prevent fulfilment, but the mere issuance of a force majeure notice does not automatically determine the accounting entry. Accountants must first identify what has actually changed in the seller’s enforceable rights and obligations.
A contract can be affected by force majeure in several different ways. It may simply be suspended, meaning performance is delayed or excused temporarily under rights that already existed in the original agreement. It may later be modified, meaning the parties renegotiate delivery windows, prices, volumes, credits, or settlement terms. It may be terminated, meaning the contract ends and any remaining performance obligations disappear. Or it may be commercially described as cancelled, which often means termination combined with refund, unwind, or damages arrangements.
That distinction matters because accounting does not respond to the commercial label alone. It responds to enforceable rights and obligations. If the original contract already contained a force majeure clause and the seller is merely invoking it, there may be no contract modification yet. There may simply be a delay in performance. In that case, revenue is not accelerated. Nor is loss automatically recognised. Instead, the seller must reassess whether the contract still exists for accounting purposes, whether any cash already received remains a contract liability, and whether any legal claims have matured enough to create a provision or accrual.
Why Revenue Is Usually Not Recognised During Suspension
The core rule in both IFRS and US GAAP is straightforward: revenue is recognised when, and only when, the entity satisfies a performance obligation by transferring control of the promised goods or services to the customer. For LNG cargoes, crude shipments, or other point-in-time export transactions, that generally means delivery at the contractual transfer point. If the cargo does not load, sail, or transfer under the relevant incoterms, then the seller usually has not yet satisfied the performance obligation.
That means that during a valid force majeure suspension, the most common accounting treatment is no revenue recognition on the undelivered cargo. Even if the customer has paid an advance, prepaid the cargo, or made take-or-pay payments, the seller normally cannot treat the amount as earned revenue unless the accounting framework supports that result under the actual contractual rights.
This is one of the most important discipline points in wartime accounting. Management teams under pressure may feel that because the counterparty is committed, because the contract still exists, or because the buyer has already paid, some or all of the amount should be recognised as revenue. But accounting standards do not treat legal survival of the contract as equivalent to satisfaction of the performance obligation. If the goods have not been delivered and control has not transferred, the normal answer is still to keep the amount in liabilities, not revenue.
How Unearned Revenue Is Handled When Cash Has Already Been Received
When a seller receives consideration before transferring the goods, that amount is ordinarily recorded as a contract liability. In practical business language, many companies call this unearned revenue or deferred revenue. The label may vary slightly, but the substance is the same: the company has received value from the customer before it has fulfilled its side of the bargain.
In a force majeure situation, this accounting treatment becomes especially important. Assume an energy exporter has received a significant prepayment for a cargo that is now delayed because conflict-related events prevent loading or transport. If the contract is still in force and the seller remains obliged either to deliver later or to provide an equivalent contractual remedy such as future cargo credit, the prepayment generally stays as a contract liability. It is not recognised as revenue during the suspension merely because the company has the cash in hand.
The treatment changes only if the legal and commercial position changes. If the parties later agree to terminate and refund, or if the contract itself says the customer can demand repayment after a specified period of non-delivery, the nature of the liability may shift. It remains a liability, but it may become better described as a refund obligation or settlement liability rather than a contract liability tied to future performance. The accounting distinction matters because it signals that the entity no longer expects to discharge the liability through delivery of goods, but rather through payment or negotiated settlement.
This is why accountants in wartime supply disruptions must not treat “cash received” as equivalent to “revenue earned.” In many cases, the cash remains economically trapped in liability form until the delivery question is resolved.
Suspension Is Not Always a Contract Modification
Another important issue is whether force majeure itself creates a contract modification. The answer is often no, at least not immediately. If the original contract already granted rights to suspend performance under extraordinary circumstances, invoking those rights usually means the parties are operating within the existing contract framework. That may change estimates and disclosures, but it does not necessarily mean that the contract has been modified in an accounting sense.
A true contract modification is more likely when the parties approve a change to enforceable rights or obligations that goes beyond the original force majeure clause. For example, they may agree to defer volumes into future quarters, adjust pricing formulas, convert cash advances into credits against later shipments, extend make-up rights, waive minimum quantities, or negotiate termination fees. At that point, the accounting analysis must consider whether the modification creates a new contract, adjusts the existing contract prospectively, or requires cumulative catch-up treatment depending on the nature of the remaining performance obligations.
In practical terms, accountants should separate three moments. First, the initial invocation of force majeure. Second, the suspension period in which delivery is delayed and uncertainty remains high. Third, the resolution phase, where the parties resume performance, amend terms, or terminate. The financial reporting often changes most significantly in the third phase, not necessarily on the day force majeure is declared.
When a Contract Might No Longer Qualify as a Revenue Contract
The fact that a contract is still alive in legal conversation does not always mean it still qualifies fully under revenue accounting guidance. One of the first things accountants must reassess is whether an enforceable contract still exists for accounting purposes. This becomes more serious in wartime conditions where sanctions, blocked payments, government restrictions, port closures, or export illegality may undermine the enforceability or collectability assumptions that supported the contract at inception.
If the seller can no longer conclude that it is probable that it will collect the consideration to which it expects to be entitled, or if the practical ability to perform becomes deeply compromised by legal restrictions, then the accounting treatment of amounts received may become more cautious. In such cases, amounts may remain recorded not as revenue but as deposits or other liabilities until the accounting criteria are again met or until the arrangement resolves through termination or settlement.
This is why the current war environment matters so much. The issue is not merely physical logistics. Even if a cargo could in theory be delivered later, accountants must consider whether sanctions, banking restrictions, legal barriers, insurance breakdown, or operational illegality are affecting the continued accounting viability of the contract.
Contingent Liabilities and Provisions: When Legal Risk Becomes an Accounting Liability
Once force majeure is declared, disputes often follow. Buyers may argue that the clause was invoked improperly. They may claim the seller failed to mitigate. They may seek replacement-cost damages, demurrage recovery, penalties, price differentials, or reimbursement of costs incurred in sourcing alternative supply. But not every threatened dispute creates an immediate accounting liability.
Under IFRS, a provision is recognised only when there is a present obligation, an outflow of economic resources is probable, and the amount can be estimated reliably. Under US GAAP, the logic is similar: a loss contingency is accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. If those thresholds are not met, the matter is generally treated as a contingent liability that may require disclosure but not recognition.
This distinction is crucial in the early stages of force majeure disputes. Suppose a buyer sends a legal letter alleging wrongful suspension and threatening arbitration. At that point, management may know there is litigation risk, but it may not yet be probable that a settlement or damages payment will be required. In that case, immediate recognition of a provision may be inappropriate. Disclosure may be necessary, but the liability has not yet matured into an accrued amount.
As the situation develops, however, the accounting can change. If legal advice indicates the seller is likely to lose, if settlement negotiations become concrete, or if contractual penalties are now unavoidable and quantifiable, the contingency may become a recognised provision. This transition from mere disclosure to recognised liability is one of the key judgement areas in wartime commercial accounting.
Example 1: Prepayment for a Cargo That Is Suspended but Later Delivered
Consider a simple example. A seller agrees to export one LNG cargo for US$40 million. The customer prepays US$12 million as an advance. Under the contract, control transfers at loading. Before loading occurs, force majeure is declared because conflict conditions make export impossible for the scheduled date. The contract is not terminated, and both parties expect that the cargo may be delivered later if operations resume.
At the time the advance is received, the seller records cash and a contract liability. There is no revenue yet because no cargo has been delivered. During the suspension, the seller keeps the balance as a contract liability. No revenue is recognised simply because time has passed. If the cargo is eventually loaded and control transfers later, the seller then relieves the contract liability and recognises revenue together with any remaining receivable or cash collection.
This example shows the basic rule clearly. A force majeure suspension delays the moment of revenue recognition. It does not eliminate the liability created by the advance. The company has the money, but accounting still views the amount as unearned until the performance obligation is satisfied.
Example 2: Prepayment for a Cargo That Is Suspended and Then Refunded
Now change the facts slightly. The same advance payment exists, but the contract provides that if no cargo is delivered within 180 days of the original loading date, the buyer may demand a refund. As the suspension continues, management eventually concludes that the deadline will be missed and that refund is now probable or legally unavoidable.
At that point, the liability has not disappeared, but its character changes. The amount may be reclassified from a contract liability tied to future delivery into a refund liability or settlement obligation because the seller no longer expects to extinguish the liability through delivery. If cash is then repaid, the liability is settled against cash. Revenue is never recognised because the performance obligation was never fulfilled.
This is an important principle in suspended energy contracts. The existence of cash receipts does not guarantee eventual revenue. If the seller’s obligation converts from “deliver later” to “refund now,” the accounting follows that new legal and commercial reality.
Take-or-Pay Contracts and Make-Up Rights
Long-term LNG and gas contracts often introduce a more complex issue: take-or-pay payments and make-up rights. In these arrangements, the buyer may be required to pay for a minimum volume even if it does not physically take delivery at that time, but the buyer often receives a contractual right to take equivalent volume in a later period.
When force majeure disrupts delivery but take-or-pay economics continue, the seller must be careful not to recognise revenue too early. If the buyer pays during the suspension but still retains enforceable rights to future delivery, the payment is often best viewed as creating or maintaining a contract liability. The seller has received consideration, but the buyer still has a right to future goods. Revenue is recognised when the make-up cargo is actually delivered, not simply when the cash is paid.
This issue becomes even more nuanced when some make-up rights are expected to expire unused. In that case, accounting standards may permit breakage revenue if the seller expects to be entitled to keep the unused consideration and can estimate that outcome reliably. But that conclusion must be approached carefully, especially in a war environment where legal disputes, renegotiations, and political interventions can change rights unexpectedly. It is usually better to be conservative unless the entitlement to retain the consideration has become clear and the risk of significant reversal is low.
Credit Risk and Expected Losses in a Wartime Environment
Even where revenue recognition itself is handled correctly, force majeure conditions can create a second wave of accounting consequences through credit risk. Trade receivables and contract assets may become riskier if buyers face liquidity stress, sanctions restrictions, banking blockages, or payment-routing problems. Under IFRS, expected credit loss principles require the entity to incorporate such deterioration into impairment estimates. Under US GAAP, similar concerns arise under current expected credit loss models.
This means a company may have done the revenue accounting correctly and still face a material earnings impact from credit impairment. In the present regional conflict, this is not a remote concern. War-related disruptions affect not only vessels and ports, but also insurance availability, clearing channels, bank compliance, and counterparties’ operational capacity. The accountant therefore has to watch both the revenue side and the collectability side at the same time.
That combination can create results that surprise non-accountants. A company may defer revenue on suspended cargoes, maintain large contract liabilities on cash received, and simultaneously book higher impairment allowances on other receivables affected by the same geopolitical event. The conflict therefore hits the financial statements through multiple channels at once.
Onerous Contracts and Unavoidable Costs
For IFRS reporters, another issue may arise if the contract remains unavoidable but the cost of fulfilment after the suspension becomes dramatically higher. Suppose the seller must honour future deliveries once the suspension ends, but the only way to do so is by procuring replacement cargo or operating through much more expensive logistics because wartime conditions have changed the market. If the unavoidable cost of meeting the contract exceeds the economic benefits expected from it, the contract may become onerous.
That does not happen automatically every time force majeure is declared. If the contract is genuinely suspended and obligations are paused, the analysis may remain open. But if the seller is still bound and performance becomes economically punishing once conditions stabilise enough for obligations to revive, the accountant may need to assess whether a provision for an onerous contract is required.
This is especially relevant in energy markets because conflict can radically distort spot prices, shipping costs, insurance expense, and replacement procurement economics. A contract signed in ordinary market conditions can become deeply loss-making by the time deliveries resume.
Hedge Accounting and Derivative Consequences
Force majeure does not only affect revenue contracts. It can also disrupt hedging relationships. Exporters often hedge forecast sales, purchases, freight exposures, or price risks. If a forecast transaction is no longer highly probable because war-related conditions have made delivery uncertain, hedge accounting may have to be discontinued prospectively. In some cases, accumulated hedge reserves may need to be reclassified into earnings sooner than management expected.
That means the accounting effect of suspended contracts can extend beyond contract liabilities and provisions. A company may face volatility through the derivative and hedging side of the balance sheet and income statement as well. In practical reporting, this can make wartime force majeure accounting look more severe than a simple “revenue delay” story. What began as an operational suspension can cascade into fair value movements, reserve recycling, and earnings swings.
For management, this is a reminder that force majeure analysis cannot sit only with Legal and Commercial. Treasury and Risk must be deeply involved because a suspension can destabilise hedge designations and increase volatility far beyond the original cargo contract.
Tax, VAT, and Jurisdictional Complexity
Tax treatment does not always move in lockstep with revenue recognition. Depending on jurisdiction, invoicing, receipt of cash, or contractual milestones may influence direct tax, VAT, GST, or other indirect tax obligations even where financial reporting revenue is deferred. Force majeure can therefore create timing mismatches between what appears in the financial statements and what tax authorities may initially treat as taxable or reportable.
Where supplies do not ultimately occur, credit notes, reversals, or refunds may become relevant. But those outcomes depend heavily on local law, contract structure, and export terms. In a multi-jurisdictional energy group operating under wartime disruption, tax review cannot be treated as an afterthought. The accountant must distinguish carefully between financial reporting liability treatment, legal refund rights, and the separate tax consequences of billing, payment, or reversal.
Disclosure Matters Almost as Much as Recognition
Even when the recognition answer is clear, disclosure remains critical. Investors, lenders, auditors, and regulators need to understand how much revenue has been deferred, how much cash has been collected but remains unearned, what legal disputes exist, what contingent liabilities have been disclosed, and what uncertainties still hang over resumption, refund, or settlement.
In the context of war affecting the Gulf region and Iran-related disruption risk, disclosure should not be vague. It should explain the nature of the suspension, the categories of contracts affected, the significant judgements applied in determining whether contracts remain enforceable, the treatment of advances and take-or-pay receipts, the status of disputes or claims, and any subsequent events that materially change the picture after the reporting date.
This is one of the areas where many companies underperform. They focus heavily on whether a line item should be called deferred revenue, refund liability, or contingent liability, but they under-explain the judgements behind those classifications. In crisis accounting, the narrative disclosure often matters as much as the journal entries because the situation is evolving and users of the statements need to understand the decision logic.
Auditor and Management Challenges
Auditors will naturally focus on several pressure points. First, whether revenue has been recognised only where control genuinely transferred. Second, whether all advances and billing balances tied to undelivered cargoes have been captured properly as liabilities. Third, whether management’s assessment of contingencies and provisions is supported by legal advice rather than optimism. Fourth, whether credit loss estimates and going concern assessments have been updated for wartime conditions. And fifth, whether disclosures adequately communicate the risks and uncertainties that still remain unresolved.
Management, for its part, needs a disciplined process. Force majeure events should be tracked contract by contract. Legal interpretations should be documented. Accounting classifications should be reviewed at each reporting date, not just once at the beginning of the crisis. Commercial renegotiations should be evaluated promptly for modification accounting consequences. And Treasury, Tax, Compliance, Legal, Commercial, and Finance should be coordinating rather than operating in silos.
Without that discipline, companies risk inconsistent treatment across contracts, premature revenue recognition, delayed recognition of provisions, weak disclosures, and audit friction at exactly the moment when stakeholders are demanding clarity.
The Accountant’s Judgment
When export contracts are suspended by force majeure but not cancelled, the default accounting approach is usually conservative. Revenue is generally not recognised until performance obligations are actually satisfied. Cash received for undelivered cargoes is generally kept as unearned revenue or contract liability, unless the legal and commercial facts later show that the obligation has become a refund or settlement obligation instead. Threatened legal claims do not automatically become recognised liabilities, but they must be evaluated carefully to determine whether they are still merely contingent or have matured into provisions or accruals.
In the current wartime context affecting Iran and the wider Gulf export environment, this accounting becomes even more sensitive because legal enforceability, collectability, sanctions exposure, insurance breakdown, hedging relationships, and logistical feasibility can all change rapidly. That means accountants cannot treat force majeure as a narrow legal event. It is a broad financial reporting event that reaches revenue, liabilities, impairments, disclosures, and in some cases even going concern.
The most accurate summary is this: a suspended contract is not the same as an earned sale, and legal uncertainty is not the same as an immediate accounting loss. The task of the accountant is to preserve that distinction with discipline, evidence, and careful judgement until the contract either performs, changes, or ends.