In recent years, geopolitical tensions have increasingly affected global energy markets, leading to noticeable volatility in oil (and gas) prices. The escalation of the Iran conflict, in particular, has raised concerns about disruptions in key supply routes such as the Strait of Hormuz and has contributed to rising prices. These developments have clear downstream effects on production and transportation costs across multiple industries.

Against this background, a key legal and economic question arises: whether and to what extent companies are entitled to pass increased costs on to their contractual partners.

As a general rule, under Austrian civil law, agreed prices are binding (pacta sunt servanda). In the absence of specific contractual provisions, cost increases typically fall within the supplier’s sphere of risk. Consequently, a unilateral price increase is generally not permissible. However, contractual practice has developed several mechanisms to address such risks:

In particular, price adjustment clauses (Preisanpassungsklauseln) are generally the preferred solution, as they allow for the modification of agreed prices under contractually predefined conditions. These clauses typically link price changes to objective external factors, such as energy or raw material indices, and must be sufficiently transparent and objectively justifiable in order to be enforceable. Common variations include index clauses, which tie prices directly to market benchmarks (e.g. oil prices), as well as energy surcharge clauses triggered by exceeding certain cost thresholds.

Force majeure clauses, which often include war or geopolitical conflicts, serve a different function: They apply where a party is prevented from performing its contractual obligations due to external events beyond its control. Their primary legal consequence is usually a temporary suspension of performance or, in some cases, termination rights. As a rule, they do not provide a basis for adjusting prices.

In the absence of such contractual mechanisms, extreme price increases may, in exceptional cases, justify an adjustment of the contract under the doctrine of the “change of fundamental circumstances” (Wegfall der Geschäftsgrundlage). This doctrine applies where circumstances which were commonly assumed by the parties have significantly changed after the conclusion of the contract, the risk was not allocated by the parties, and performance has become economically unreasonable for one party. It is not necessary that such developments were entirely unforeseeable in abstract terms; rather, it is sufficient that they were not actually taken into account by both parties. However, this doctrine is not explicitly regulated in the law and remains a remedy of last resort, which is applied restrictively by the courts.

Also only in more extreme constellations may Austrian law provide relief under § 1447 Austrian Civil Code (ABGB, Untergang der Sache). According to established case law, this provision which covers the subsequent (i.e after conclusion of the contract) impossibility of performance (nachträgliche Unmöglichkeit) is not limited to physical impossibility but also covers situations of so-called “economic impossibility” (Unerschwinglichkeit). This requires that performance, while still physically possible, becomes objectively unreasonable due to a gross disproportion between the required effort and the agreed consideration. The threshold for such cases, however, is particularly high.

Since the application of § 1447 ABGB would lead to an automatic termination of the contract (eo ipso, the law states that the contract “falls apart”), parts of the literature advocate, instead, drawing on the value judgments underlying § 934 ABGB (laesio enormis). This approach allows the contract to be preserved by granting the counterparty the opportunity to “rescue” the agreement through an adjustment of the price to a level that at least covers the debtor’s costs.

From an economic perspective, companies are often compelled to pass on increased costs in order to maintain profitability. In practice, this frequently leads to a cascading effect along the supply chain up to the final customer. Nevertheless, from a legal standpoint, such cost transfers must be based on contractual provisions or meet the strict requirements of the doctrines described above.

In conclusion, the recent oil price increases linked to geopolitical conflicts once again highlight the importance of careful contractual risk allocation. Companies are well advised to review their existing contracts and, in particular, to include clear and workable price adjustment mechanisms to address future market volatility in uncertain times.