On 5 June 2017, Saudi Arabia, the United Arab Emirates, Egypt and Bahrain (the Blockading Countries) severed diplomatic and economic relations with Qatar. Since then, a number of other countries, including the Maldives and Mauritius, have followed suit or expressed support for the measures. The shipping industry must carefully monitor this situation as it develops.
In this alert, we explain the position to date and take a look at what shipping companies trading Qatar need to be mindful of to limit and manage any potential impact on their business.
What has happened?
There is no uniform approach in the measures adopted by the Blockading Countries against Qatar, but broadly speaking the following steps have been taken:
- land, air and sea traffic have all been affected;
- both Qatari diplomats and other Qatari nationals were given a limited period within which to leave the Blockading Countries; and
- a number of Qatari nationals and companies have now been designated as terrorist organisations/individuals or supporters of such by the Blockading Countries.
At the time of writing, all of the Blockading Countries save Bahrain are refusing Qatari-flagged vessels entry to their ports. This prohibition extends in many cases to Qatari-owned vessels. Crucially, the UAE had been refusing onward clearances from its ports if the next port of call was Qatari (and refusing entry when the previous port of call was Qatari). This prohibition affected all vessels, including non-Qatari flagged vessels. It is presently unclear whether those particular restrictions remain in place. Clearance of Qatari cargo (that is to say, cargo originating in Qatar) or cargo coming to/from Qatar (that is to say, where its origin might be elsewhere) is affected, and restrictions around Qatari nationals also have potential implications for vessels employing Qatari crew.
The divergence in the approach taken by the Blockading Countries, and the fast-moving nature of this international situation, means all companies involved in trading Qatar, whether shipowners, charterers, shippers or cargo owners, must pay close attention to these new rules, and potentially seek advice on their obligations vis-à-vis the Blockading Countries and parties with whom they are contracting.
What about the Suez Canal?
All eyes are on the Suez Canal. Access is governed by international treaty1 and it is therefore highly unlikely that Egypt would prohibit usage of the canal by Qatari-flagged vessels (or other vessels). Certainly, for now, we continue to see Qatari-flagged vessels being permitted entry. It is nevertheless theoretically possible under the treaty2 for vessels to be denied entry, if such denial is necessary to secure Egypt or maintain public order there, though it is not yet anticipated that this will be deployed under the present circumstances. The Oxford Institute for Energy Studies3 has suggested that the authorities could reduce the canal-fee discount offered to LNG ships, making transits more expensive and reducing the competitiveness of Qatari gas in the European market. For all these reasons the position relating to the Suez Canal should continue to be monitored.
I am a shipowner, but the vessel is not Qatari flagged – do I still need to be concerned?
Absolutely. Some of the measures undertaken by the Blockading Countries apply to all non-Qatari flagged ships. If you are trading Qatar, carrying Qatari-origin cargo or cargo from Qatar, or have on board Qatari crew, you should consider your position.
If, for example, you are ordered by charterers to Qatar, you should consider which ports you have recently traded and, in particular, whether you are currently in a port in any of the Blockading Countries. If you find yourself in the UAE, you may be refused onward clearance to Qatar. You should then consider, and seek advice on, whether you can legitimately refuse those orders under the governing charterparty (and any bills of lading), or come to some alternative arrangement with your charterer, to avoid or manage potential breaches of charter and associated claims. Under a time charter the liberty language of clauses such as the CONWARTIME may offer sufficient flexibility to an owner to legitimately refuse orders to Qatar, but naturally this ought to be confirmed on a case by case basis with your legal advisors. Voyage charterparties with agreed ports of call in both Qatar and one or more of the Blockading Countries will, clearly, potentially be more challenging, and terms should be reviewed.
If you are carrying goods from Qatar and ordered to a port in one of the Blockading Countries for discharge, under the present situation you will likely be refused entry. You should immediately seek guidance from your legal advisors as to where this leaves you vis-à-vis your charterers and under any bills of lading in order to mitigate risk and possible losses.
Similarly, if you are in Qatar and in the process of loading goods for discharge in one of the Blockading Countries, be sure to work quickly with your business partners, including charterers and shippers, to see whether steps can be taken to ensure the goods are cleared. One potential development (although given present indications, this appears unlikely) is the extension of the prohibition on entry to ports in Blockading Countries to vessels that have recently traded Qatar, even if a Qatari port was not the last visited. Not least for this reason, advice should be sought as to what rules are in play and whether any pragmatic solution is legal and effective.
If you have Qatari crew, you should also immediately review your employment contracts as well as the relevant charterparty. Depending on the language there, you may be able to refuse orders to trade Qatar, and you may be able to avoid any liability for deviation should you need to change your crew.
What about sanctions laws?
Neither the United States of America nor the European Union has yet followed the Blockading Countries in adopting measures to interrupt trade with Qatar, nor have they placed any individuals or organisations on their respective lists of sanctioned persons. At least for now, therefore, no compliance issues arise in that regard for companies and individuals obliged to comply with U.S. and EU sanctions laws.
Where such a company or individual has an ownership or nationality connection with any of the Blockading Countries, however, specific and detailed legal advice should be sought on the relevant laws of that country. Such a company or individual should properly be concerned that its or their obligations might be greater than those of a company or person that does not have such a connection, in particular regarding dealing with persons or entities designated by the Blockading Countries.
For all the reasons outlined above, however, all companies trading Qatar, even under U.S. or EU ownership, need to be mindful of these new rules to ensure minimum disruption to their business, as the reality is that the measures in play can and will have a practical impact on shipping companies.
How can we help?
Feel free to contact any of the following for guidance; alternatively, speak with your usual Reed Smith advisor.
1. The Convention of Constantinople.
2. Article X.
3. "Feud Between Brothers", June 2017.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.