Why contemporary conflict requires a new settlement between states, lenders, and private investors
Introduction: When PPP risk models meet geopolitical reality
Public–Private Partnerships (PPPs) were designed to allocate risks efficiently between public authorities and private investors over long project lifecycles. Their success depends on predictability: reasonably stable political environments, functioning financial systems, and the assumption that extraordinary events are temporary interruptions rather than structural conditions. Recent global uncertainty, wars, and sanctions have challenged these assumptions. Instead of short-lived disruptions, conflicts now generate prolonged periods of legal, financial, and operational impossibility. In this setting, traditional PPP tools such as sovereign guarantees (e.g. World Bank’s guarantee), insurance programs (MIGA’s insurance), and force majeure clauses often remain legally intact but cease to function economically. Political force majeure has therefore shifted from a theoretical legal category to a central determinant of infrastructure outcomes.
Understanding political force majeure in PPP contracts
Political force majeure refers to events rooted in sovereign action or geopolitical conflict that fundamentally prevent contractual performance. Unlike natural disasters, these events are often prolonged, legally complex, and intertwined with sanctions, fiscal stress, and international payments systems. Typical examples include wars, embargoes, currency transfer prohibitions, and government actions undertaken in response to international pressure. While many PPP contracts list “war” within standard force majeure provisions, they rarely address the structural consequences of long-duration conflict. As a result, contractual relief mechanisms intended for temporary disruption are applied to situations of enduring impossibility.
Why sovereign guarantees fail under war and sanctions
Sovereign guarantees are a cornerstone of PPP bankability, particularly in emerging markets. They are intended to mitigate public-sector payment risk by transferring ultimate responsibility to the state. However, guarantees are only as effective as the state’s ability to mobilize liquidity, convert currency, and access international banking channels. Armed conflict and sanctions undermine all three. Frozen reserves, correspondent banking withdrawal, and sanctions compliance obligations frequently render payments illegal or impossible, even when guarantees are triggered. In practice, lenders face a distinction between legal enforceability and commercial usability; a distinction that becomes decisive under conflict.
Case evidence: Power IPPs and sanctions-induced payment blockage
Evidence from recent conflicts shows that many Independent Power Producers have continued operating despite severe disruption. Electricity supply often remains politically sensitive, compelling governments to prioritize service continuity. Nevertheless, sanctions have blocked offshore payment flows to lenders and sponsors. Practitioners report cases where payment guarantees were invoked successfully under contract, yet funds could not be transferred due to sanctions or banking restrictions. From a financing perspective, the guarantee existed legally but failed economically, shifting de facto risk back onto lenders and equity holders.
Scenario Example: Power IPPs under Sanctions-Induced Payment Blockage
“Our power plant continued supplying electricity without interruption, and the government guarantee was triggered. However, lenders could not receive payments offshore due to sanctions and banking restrictions. From a financing perspective, the guarantee existed legally but failed commercially.” — Senior lender representative, gas-fired IPP
Insurance: Coverage without collectability
Insurance is commonly viewed as the private sector’s ultimate fallback against catastrophe. In wartime PPPs, this assumption frequently proves false. Standard property and business interruption policies exclude war, seizure, and sanctions-related losses. Even specialized political risk or political violence insurance may remain unpaid if claim settlement would violate sanctions regimes. As a result, projects may be insured on paper but exposed in practice, which is increasingly described as “non-payable insurance.”
Scenario Example: Port Concession and Marine Insurance Withdrawal
“Once hostilities escalated, marine insurance cancelled coverage with minimal notice. Cargo volumes collapsed overnight, yet the business interruption policy did not respond because there was no qualifying physical damage.” — Port concession operator
Marine insurance withdrawal and transport PPP disruption
The rapid withdrawal of marine war-risk insurance during recent conflicts illustrates this dynamic starkly. In early March 2026, multiple Protection and Indemnity clubs canceled or restricted coverage for vessels transiting high-risk maritime corridors. This decision effectively shut down trade routes without any formal blockade. For port, airport, and logistics PPPs, insurance withdrawal proved as disruptive as physical damage, collapsing demand, delaying supply chains, and undermining revenue models. Yet many business interruption policies failed to respond because losses arose from access denial rather than physical destruction.
Force majeure clauses and the problem of prolonged conflict
Force majeure clauses were never intended to address prolonged or multi-year geopolitical crises. They typically provide time relief, suspension of obligations, and limited compensation while the event persists. When conflict and sanctions continue indefinitely, suspension becomes a mechanism for deferring insolvency rather than preserving value. Courts and arbitral tribunals have consistently emphasized that force majeure requires prevention, not mere hardship, i.e. the crisis needs to directly lead to nonpayment. Over time, legally prohibited payments, supply restrictions, and currency controls increasingly satisfy this threshold.
Scenario Example: Transport PPP Traffic Collapse
“The contract treated war as general force majeure, granting time relief only. But with borders effectively closed and trade volumes collapsing, there was no realistic recovery path. Suspension delayed insolvency but increased losses for all parties.” — Advisor to toll road PPP
From suspension to termination: The legal trajectory
International legal practice shows a clear trajectory under prolonged political force majeure. Initial suspension gives way to termination once performance becomes legally or practically impossible for an extended period. Where contracts lack clear longstop provisions, this transition often occurs through disputes rather than design. Termination under political force majeure shifts focus from performance to compensation particularly the protection of senior debt. Equity recovery, by contrast, is commonly limited or excluded, reflecting the political nature of the risk realized.
Sectoral impacts: Not all PPPs fail the same way
The manifestation of political force majeure varies significantly across sectors. Energy PPPs face combined fuel, sanctions, and payment risks that can render technically viable projects financially insolvent. Transport and port PPPs experience abrupt demand collapse when borders close or routes are deemed uninsurable. Water and social infrastructure PPPs often continue operating, but unpaid availability payments accumulate as fiscal liabilities. These differences underscore the need for sector-specific crisis responses rather than one-size-fits-all contractual remedies.
Implications for lenders and capital markets
For lenders, wartime PPPs fundamentally alter the risk profile of infrastructure finance. Project performance risk gives way to sovereign settlement risk. Step-in rights, traditionally central to lender protection, may be legally preserved but operationally impracticable. Capital markets therefore focus increasingly on termination mechanics, offshore payment feasibility, and senior debt priority. Where these elements are unclear, financing capacity evaporates rapidly.
Policy implications: Rethinking the Public–Private balance
The ultimate policy lesson is straightforward but politically difficult. Risks that cannot be insured, priced, or legally enforced cannot remain with private investors. In practice, these risks revert to the sovereign whether acknowledged or not. Proactive recognition of political force majeure, paired with transparent termination and compensation frameworks, is less costly than allowing projects to fail through attrition and dispute.
Design principles for wartime PPP resilience
Governments and advisers designing or amending PPPs under conflict conditions increasingly apply several principles. These include explicit sanctions carve-outs, offshore or alternative currency payment mechanisms where lawful, shortened longstop periods for political force majeure, and predefined termination compensation prioritizing debt. Such measures do not eliminate political risk, but they convert uncertainty into quantifiable exposure.
Conclusion: From denial to discipline
Wartime PPP failure rarely stems from conflict alone. It reflects contractual denial of political reality. Where governments, lenders, and sponsors confront political force majeure early and transparently, infrastructure systems can be stabilized, even if some projects must terminate. Where denial persists, losses compound, disputes proliferate, and future investment becomes harder to mobilize. In an era of recurring geopolitical shock, discipline, not optimism, is the foundation of sustainable PPP policy.