Qatar sanctions: implications for marine

On 5 June 2017, Saudi Arabia, the UAE, Egypt, Yemen and Bahrain severed diplomatic and trade ties with Qatar.

Background

A number of directives, often inconsistent and/or conflicting, were then issued by individual UAE Ports (including Fujairah, DP World and Abu Dhabi Ports).

The prohibitions have now been clarified by a formal Directive issued by the UAE Federal Transport Authority on 11 June – which, significantly, uses the word “sanction” for the first time – being titled “Implementation Process of the Decision Related to Qatar Sanctions”. Prior to this, from a legal perspective, it had been unclear if the “Qatar Situation” was a trade embargo, blockade or sanctions.

In summary, the Directive sets out prohibitions on:

  • All Qatari flagged vessels or vessels owned by Qatari companies calling at UAE ports.
  • All vessels calling whose “last port” was a Qatari port or the “next port” will be a Qatari port.
  • Vessels loading/discharging cargo destined to/from Qatar – regardless of the next/last port.

At this stage, in the context of shipping, there have been no formal directives – either from individual ports or governments, from any other countries that have severed ties with Qatar.

This is most significant in relation to Egypt, which is Qatar’s biggest Middle Eastern buyer of LNG. Notably, in the last few days, a floating storage unit in Egypt accepted delivery from a vessel that had loaded LNG at Ras Laffan, Qatar.

More importantly, Egypt has not yet blocked any Qatari vessels that have loaded in Qatar or are going to Qatar from transiting the Suez Canal. This would obviously have a huge impact on the time/costs required for voyages to/from Europe with vessels forced round the Cape.

Practical issues

A number of practical/operational issues arise out of this situation:

  • Any vessels calling to/from Qatar will be prevented from bunkering at Fujairah, the main bunkering port in the region.
  • There will likely be a smaller pool of vessels available to load at Qatar, which will force parties to charter in vessels to perform from further afield, such as the West Coast of India. This will obviously add a longer ballast voyage and bunker costs.
  • Vessels may be forced to deviate to Singapore to bunker, given that it is not possible to bunker at Fujairah. This also adds time and additional bunkers burnt.
  • Alternatively, if a vessel is obtained closer to the Gulf, bunkering may be required at higher cost from Sohar, Oman or Bandar Abbas, Iran – or with a deviation to Kuwait.
  • UAE ports are prevented from providing any kind of maintenance, crewing, repairs or services to any vessel with a next/last Qatari port – including at anchorage.
  • This is important in relation to hold cleaning, which is often required to a high standard before loading sensitive cargoes in Qatar, like fertilizers. Fujairah or other UAE ports are commonly used for such hold cleaning, as Qatar has limited facilities for this. This may necessitate a deviation to, perhaps, Sohor – creating deviation and other additional costs.

Legal issues

A number of clauses in shipping contracts may be relevant in this situation:

Sanctions clauses

Given the UAE Directive, these are now clearly relevant, although whether or not they will assist will depend on the particular wording of the clause. These are usually of more benefit to charterers, providing that owners will not nominate a vessel affected by sanctions (for example – a Qatari flagged or owned vessel, or one with a last port of call at a Qatari port).

“Blockade”

The definition of “War Risks” in Conwartime/Conwarvoy includes a reference to “blockades”. However, in this situation, there is currently no ‘danger’ and vessels are not actually prevented from entering or leaving Qatari ports per se. It is unlikely at this stage that this provision would be triggered.

Force majeure

At this stage, it is unlikely that a “force majeure” type clause would be triggered, as performance under most shipping contracts involving Qatar will still be possible, albeit the cost/duration may be affected due to the need for deviations.

Frustration

A contract can be legally “frustrated” where: without the fault of either party, an event occurs which either makes performance impossible, or as a matter of business – totally different from what was agreed – with the result that the charter is automatically terminated by operation of law.

It is unlikely that shipping contracts involving Qatar will become “impossible to perform” based on the current sanctions - unless the trade is between, say, UAE and Qatar.

The key question is then whether or not it has become something “totally different from what was agreed”. In this respect, the threshold is set high, described by the House of Lords in David Contractors v Fareham [1956] as: “rendering it a thing radically different from that which was undertaken by the contract”.

It is unlikely that the contract would be deemed frustrated in circumstances where it can still be performed, albeit with higher costs than expected being borne owners.

Termination for frustration of contract is then unlikely to be an available argument.

Next steps

The issues above should be considered in any negotiations for future business involving Qatar, and owners/operators should factor in the additional costs of performance to their rates.

You should also be considering bespoke amendments to your Sanctions/Force Majeure clauses to cover yourselves should the matter escalate.

Particular issues that should be addressed are:

  • The possibility that Egypt closes the Suez Canal to Qatari vessels or vessels going to/from Qatar.
  • The possibility that the “next/last” provision is changed by the Governments involved to, for example, the last five ports of call, while a vessel is en-route.

Anyone trading in this region should keep a close eye on developments, as the situation could escalate quickly with little warning.

Read other items in the Marine Brief - September 2017