Israeli Companies Must Adapt Contracts for Wartime Conditions

This article was originally published by TV10 in April 2026.

The war is putting the contracts of Israeli companies operating globally to a real test. If a contract has been drafted incorrectly, companies may find themselves in legal trouble.

One of the effects of the war with Iran on Israeli companies operating in the United States and around the world is that it places contracts under a “stress test.” This refers to three contractual doctrines that must be taken into account in emergencies when contractual performance becomes impossible: Force Majeure, Frustration of Purpose, and Payment Defaults.

Force majeure is a contractual clause that excuses parties from their obligations when an extraordinary, unforeseeable event beyond their control makes performance impossible. However, this clause is not a blanket escape hatch. It is a narrow defense that depends entirely on the wording of the contract. Courts in the United States look only at the written language. If the word “war” is not expressly included, the argument for avoiding contractual liability becomes much more difficult. Even when the term “war” does appear, the dispute over performance or breach shifts to the question of causation, namely whether the war actually prevented performance or merely made it more expensive. This distinction is critical. A shipping delay caused by the closure of airspace may qualify as force majeure, but a spike in fuel costs usually will not. Courts in the United States generally do not excuse parties from performing a contract simply because the deal has become unprofitable. They see a need to enforce contracts in a way that reflects the parties’ expectations at the time of signing, rather than to impose a fairer bargain for one side when conditions later turn against it.

Frustration of purpose offers an alternative defense. This doctrine excuses performance when an unforeseen event destroys the contract’s underlying purpose, even if performance itself remains technically possible. The doctrine is relevant only when the impairment to the contract is substantial and is not the fault of either party. For that reason, it is essential to spell out in the contract the purpose of the transaction and the assumptions underlying its occurrence.

Most business disputes during wartime arise from payment defaults. Business partners in the United States may delay or refuse to make payments owed to Israeli companies, citing supply delays, logistical difficulties, or changing market conditions. Israeli businesses may act similarly. In such a situation, legal theory becomes operational reality. Nonpayment is both a legal issue and a mechanism that triggers breach provisions and termination rights. It often leads to litigation in which the cost of a legal victory may exceed the value of the dispute itself.

In light of the current geopolitical reality, Israeli businesses should conduct a fresh audit of their existing contracts in order to identify which agreements contain strong force majeure protections. Look for language that expressly covers war, terrorism, supply chain disruptions, and government restrictions. Where the language is weak, try to renegotiate or assume that full performance will still be required. In cases where the other party insists on strict enforcement of the contract, make sure to document every good-faith effort made to mitigate damages.

This process is not comfortable, but it is essential. Israeli businesses that use this moment to recalculate their approach to risk management, contract drafting, and partner management will emerge stronger. Those that continue to rely on past assumptions may discover that the real battle is fought not in the marketplace, but in the fine print and in court.

Michael Ehrenstein is a founding partner at the U.S. law firm Ehrenstein|Sager, which specializes in commercial law, complex litigation, and high-stakes international arbitration.

Legal Disclaimer: This article does not constitute legal or tax advice. Its purpose is to raise awareness of compliance issues in the United States. Israeli businesses should consult qualified U.S. legal and tax professionals in order to obtain advice tailored to their specific operations.