The Strait of Hormuz Crisis: From Charterparty Risk to Commodities and Trade Finance Disputes
- SEDA Experts
- Jul 31, 2024
- 7 min read
The effective blockade of the Strait of Hormuz has already prompted detailed commentary on charterparty wording, war-risk clauses and safe-port obligations under English law. Recent filings such as SARAS SpA and SIAT Società Italiana di Assicurazioni e Riassicurazioni P.A. v. PT Alor Bahtera Laju Abadi (LM‑2026‑000132), an open Shipping — Cargo claim filed on 9 April 2026 in the London Circuit Commercial Court, show that this is no longer a theoretical debate but an active source of London-based disputes. For many Disputes teams, however, the most complex fights will not be limited to shipowners and charterers; they will emerge in the commodities trading and trade finance chains that sit behind each voyage, in contracts that are only partially back-to-back, funded through layered banking structures and hedged in imperfectly matched derivatives markets.
A Loaded Vessel That Cannot Deliver
The most immediate commercial problem is often simple to state and difficult to solve: what can a party do, contractually, when the vessel has already loaded but cannot safely or lawfully reach the nominated discharge port? In practice, the answer depends on several connected but distinct contracts, including the charterparty between owner and charterer, one or more sale contracts between traders and end-users, and the financing arrangements supporting the cargo.
Most of these agreements contain provisions dealing with war, conflict, blockade or political interference, and many include some form of force majeure language. The difficulty is that these clauses are rarely fully back-to-back across the chain, so an event that qualifies as force majeure in one contract may not do so in another. That is the point at which disputes tend to crystallise, with counterparties challenging whether force majeure was validly declared, whether notice provisions were complied with, and whether the event genuinely prevented performance rather than merely making it more expensive or commercially unattractive.
Time Bars and Cancellation Rights
Even where parties agree that a force majeure event exists, many commodity and freight contracts contain time bars that allow a shipment to be cancelled if the event persists beyond a stated period, often 60 to 90 days. In long-term supply arrangements, that can mean not just cancellation of a shipment but termination of the wider contract itself.
Those clauses create obvious tension in a prolonged Hormuz disruption, and the commercial incentives are not always as they might first appear. Where prices have spiked as a result of the disruption, it is sellers who may have the stronger motive to invoke cancellation rights and re-enter the market at the higher prevailing price. Buyers, by contrast, face replacement costs well above the original contract price and will typically resist any force majeure or cancellation argument, seeking to hold the seller to the original terms. Financing parties may simultaneously reassess the creditworthiness of the underlying trade as the expected delivery timeline slips.
Disputes can therefore be expected over whether cancellation rights have properly arisen, which party is really driving the termination argument, whether parties acted in good faith, and how far each was required to mitigate disruption by accepting substitute routes, substitute ports or revised delivery schedules.
Supply-Chain Knock-On Effects
A less immediately visible but potentially vast source of downstream litigation concerns the cascade effects moving through the supply chain. For raw materials transiting Hormuz — oil, gas and petrochemical feedstocks and fertilisers among them — disruption to delivery does not stop at the first sale contract. Factories and producers that depend on those inputs will face either a shortage of critical materials or substantially higher replacement costs, and if their own sales contracts are then put under threat, the question arises whether that secondary disruption also qualifies as force majeure. How far down the supply chain a force majeure declaration can legitimately travel is a genuinely novel question, and one that is likely to be among the defining issues for tribunals hearing Hormuz-related disputes in the coming months.
Trade Finance Pressure Points
Trade finance structures create a different layer of complexity. A single-voyage transaction supported by a documentary letter of credit may appear straightforward, but if the vessel is delayed beyond the LC validity period and the contractual framework does not suspend or extend the relevant deadlines, the bank may have no obligation to honour documents presented out of time. That can produce disputes even where the underlying physical interruption is uncontested. Whether banks will in practice extend LC validity to accommodate Hormuz-related delays is not guaranteed; it will depend heavily on the relationship between the bank and its counterparties. Could buyers avoid higher delivery costs by encouraging the banks to find discrepancies?
More structured financings raise additional issues. Borrowing base facilities, receivables financings and inventory-backed structures are often calibrated around expected shipment dates, collateral turnover and concentration limits by geography or route. A prolonged chokepoint disruption can distort all of those assumptions, potentially triggering covenant issues, reduced availability, pricing adjustments or renewed internal credit scrutiny at precisely the point when liquidity is under stress. Because financing documents are often drafted with different risk logic and regulatory constraints than sale contracts, their treatment of force majeure and political risk may diverge sharply, creating fertile ground for disputes between borrowers and lenders.
Insurance presents a further set of questions. If a vessel is damaged during transit through the Straits, whether coverage responds automatically or whether insurers can identify grounds to resist a claim is itself likely to be contested. Even where primary coverage does respond, the allocation of additional costs arising from delays and replacement shipments — particularly where no specific war-risk or delay coverage was in place — will generate its own disputes.
Physical Obligations Versus Financial Hedges
A key point that lawyers sometimes underweight is the disconnect between physical contracts and financial instruments. Physical obligations may be suspended, delayed or discharged under force majeure, war-risk or related contractual protections, while associated swaps, futures and options usually continue to operate according to their own terms.
That mismatch can create substantial secondary exposure. A refinery or trader may be relieved from receiving a cargo, but still face obligations under downstream product sales, basis contracts or hedging arrangements that were put in place on the assumption the cargo would arrive. As prices move, the financial side of the book can generate margin calls and losses even if the physical side is partly protected, leaving parties to argue about what is directly within force majeure, what is only indirectly affected, and what falls outside the clause altogether.
Classification and Causation Issues
Another likely area of argument is classification. Depending on the drafting, outcomes may turn on whether a Hormuz incident is characterised as war, terrorism, a restraint of princes, political violence or some other security event. As the current crisis does not always map neatly onto a classic state-to-state conflict model, those definitions may not align cleanly across contracts, policies and sanctions frameworks.
That makes factual reconstruction especially important. Tribunals may need to examine the exact nature of the threat, the source of official warnings, the status of any military or governmental interdiction, and the practical distinction between a route that remains theoretically open in law and one that has become commercially or operationally unsafe in fact. Those issues can feed directly into force majeure arguments, insurance positions and broader questions of causation.
Rerouting, Benchmarks and Valuation
Hormuz disruption also raises difficult pricing and valuation questions. If parties elect to reroute via the Cape of Good Hope or another alternative, voyage times, freight costs and insurance premiums can increase materially. The resulting disputes are not limited to who pays the extra cost; they can also extend to whether rerouting was reasonable at all, particularly if an insurer or counterparty argues that the Strait was still technically open.
Benchmark disruption creates a related problem. Where contracts depend on reference prices linked to regional crude or products markets, severe dislocation may prompt arguments over whether a benchmark has failed, whether an alternative pricing mechanism should be used, and how damages should be measured if the normal market reference point is impaired. These questions sit at the intersection of legal drafting and market practice, which is often where expert evidence becomes decisive.
Why Expert Evidence Matters
In a dispute of this kind, tribunals will usually need more than black-letter legal analysis. They will want to understand how traders, banks, refiners and risk managers actually behaved before and during the disruption, what market-standard drafting and risk allocation looked like at the time the relevant contracts were entered into, and whether the parties' responses were commercially orthodox or opportunistic.
That is where independent experts in commodities trading and trade finance can add real value. They can help a tribunal assess how risk was priced, how financing lines were managed, how hedges were expected to interact with physical positions, and whether the claimed consequences of a Hormuz disruption are consistent with market practice. In a case such as SARAS SpA v. PT Alor Bahtera Laju Abadi (LM-2026-000132), that broader commercial context may be critical to understanding how a shipping interruption translates into wider disputes across the sale, finance and risk-management chain.
Conclusion
The Hormuz crisis is not just a maritime law story. It is a full-chain risk allocation problem that can trigger disputes across charterparties, sale contracts, letters of credit, structured finance documents and hedging arrangements. For disputes practitioners, the most significant cases may therefore be those that combine transport disruption with contested force majeure positions, financing mismatches and sharp disagreement over what sophisticated market participants could reasonably have done once a loaded vessel could no longer perform the voyage originally contemplated. SEDA has an unparalleled range of experts ready to assist, no matter the case. If you want to know more about how we can help, please get in touch.
EXPERT INVOLVED
Bruno Roch - Managing Director
Bruno Roch has over 20 years of experience in energy markets covering both physical and derivatives transactions and has overseen global trading activities within Goldman Sachs and Trafigura amongst others. He is a world-class expert in Power, Gas, Dry Freight, Iron Ore, Fertilizers, Biomass, Emissions, Petroleum Coke, Thermal and Metallurgical Coal.
Ian Mote - Managing Director
Ian Mote has over a quarter-century of expertise in international finance and banking, with a focus on Structured Trade and Commodity Finance, treasury management, and trade finance within global markets. Ian spent 20 years working with Standard Chartered Bank, where his career included significant roles in Europe, the Middle East, and Greater China.
Melissa Gleave - Director of Client Solutions
Melissa Gleave is a senior investment banking and financial markets professional with over two decades of experience across derivatives, capital markets, and institutional client coverage, combined with leadership roles in expert services for financial disputes.
Richard Jefferson - Managing Director
Rich Jefferson is a former Global Head of Commodities Trading at Deutsche Bank with over 25 years of financial markets experience. He spent 19 years at Deutsche Bank in London and New York as a Foreign Exchange Derivatives Trader and then helped to build the energy trading franchise in North American Power and Gas, Oil and Refined Products.
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