Prepare for ‘disruption and uncertainty’

Ship charterers and brokers should prepare for “disruption and uncertainty” if they have cargo interests in Qatar, as its political rift with Middle East neighbours deepens, according to Ince & Co.

A number of Qatar’s neighbours and other nations cut diplomatic ties with the Gulf State on June 5, shutting down land and sea links, and restricting air space.

In just over a week, Saudi Arabia, the UAE, Egypt and Bahrain have thrown Middle Eastern trade into disarray as they have systematically cut diplomatic ties and transport links with Qatar amid claims of it financing militant groups. Qatar strongly denies the accusations, but the allegations have still led to the worst split between Arab states in decades.

“It is impossible to confidently predict how the situation will develop, for how long the ‘Qatar ban’ will remain in place and whether any further restrictions will be implemented,” says Rania Tadros, managing partner at Ince & Co Dubai. “At this time, there are no signs that a wider sanctions regime against Qatar is being contemplated by the GCC states, but we recommend that affected parties monitor the situation closely and check for reports from official sources for guidance as to each State’s position.”

Lack of clear information

A major cause of the uncertainty is the lack of clear guidance on how the UAE, Saudi Arabia, Bahrain and Egypt intend to practically apply their cutting of trading links with Qatar. Some of the initial circulars from ports have already been revised to fit changing political diktats. For example, the UAE has flip-flopped from a complete ban of ships with Qatar links, to a relaxation, back to a complete ban in under a week. It has re-imposed a ban on oil tankers linked to Qatar calling at ports in the UAE, reversing an earlier decision to ease restrictions just a day earlier.

Of more concrete restrictions, Etihad, Emirates and Flydubai have suspended flights to and from Doha with effect from June 6, while the land border between Saudi Arabia and Qatar is closed.

Ince’s Tadros advises that shipping companies should, where practical, make provisions for dealing with potential payment problems, cargo restrictions, illegality and sanctions. “There are a number of contractual issues facing the shipping industry as a result of these developments. Charterparty provisions over ‘blockade’ and safe port/berth warranties may be relevant under these circumstances. The concept of ‘frustration’ may also arise if a vessel cannot get close to its nominated port as a result of the measures announced by the UAE, Saudi Arabia and Bahrain. Given these and other issues, those entering into charterparties that might be affected by the closure of ports to Qatari trade should consider incorporating terms that allocate the associated risks.

“It is also possible that the wording of existing clauses may be wide enough to embrace the prohibitions put in place by the UAE and others in relation to Qatari vessels. A party may also be able to rely on a force majeure event if it is expressly entitled to do so under the contract.”

Clyde & Co adds that the dispute may lead to a number of operational issues with increased difficulty and costs in effecting crew changes and it questions how operators will be able to obtain spares and other supplies, given the closure of the land border.

It also advises that businesses concerned that they may be affected by restrictions on trade with Qatar consider any applicable force majeure provisions in their long term contracts such as charterparties, “as well as any trading limit clauses, safe port warranties, liberty to deviate and other protective clauses in order to identify potential vulnerabilities they have, as well as checking their insurance position”.

Commodity issues

One Qatar aluminium plant has already acknowledged the logistical challenges. Most shipments for Qatalum – a joint venture between Hydro and Qatar Petroleum producing more than 600,000 tonnes per year of value-added primary aluminium to customers in Asia, Europe and the US – go through Jebel Ali port in UAE. However, it closed its gates to all Qatar shipments on June 6. Qatalum is now seeking alternative shipment routes.

Grain supplies are also a concern. Qatar has enough grain to last for four weeks and then has strategic food reserves in Doha to tap into, but it has already entered into talks with Turkey and Iran to secure additional supplies if necessary.

On a positive note, while national ports might be able to place bans on Qatari ships, closing the Suez Canal to those same ships is a harder task. The Suez Canal is covered by Article 1 of the Convention of Constantinople (1888) which provides access to the Canal to all vessels, irrespective of flag. While Article 10 permits the Egyptian authorities to take measures for the defence of Egypt and the maintenance of public order, there has been no official comment from the Egyptian Government that it would invoke Article 10 over Article 1 as yet.