As a lawyer who practises in ship arrest and admiralty matters, I look at the current crisis involving Iran, the disruption to the Strait of Hormuz and soaring oil prices through a slightly different lens from most commentators. Important though the geopolitical and military dimensions plainly are, my immediate instinct is to consider the commercial consequences for shipowners, operators, charterers, suppliers, lenders and insurers. In shipping, geopolitical shock rarely stays geopolitical for long. It very quickly turns into cash-flow strain, delayed payments, contested liabilities and, in some cases, urgent applications to arrest ships.
That is particularly true where the shock affects energy flows. The present conflict has severely disrupted traffic through the Strait of Hormuz, a waterway through which roughly a fifth of global oil and LNG normally passes, while Brent crude has moved above $100 a barrel. Refined fuel markets have also tightened, with diesel and bunker costs coming under particular pressure, and major operators such as Maersk have responded by introducing emergency bunker surcharges.
History teaches that sea power is often as much about threat as about actual destruction. One of the enduring lessons of naval warfare is that a credible threat to a chokepoint can have market consequences out of all proportion to the number of ships actually attacked. That is one of the clearest features of the present situation. Even where capability is uncertain or uneven, the mere prospect of drones, missiles, mines, rising war-risk premiums and the absence of secure escort arrangements is enough to force owners, charterers and underwriters to reprice risk immediately.
From the perspective of a ship arrest lawyer, this is relevant because these added costs do not fall evenly across the market. Stronger operators may absorb them. Weaker or more thinly capitalised players may not. When bunker costs rise sharply, war-risk insurance becomes materially more expensive, schedules are disrupted and freight economics deteriorate, the legal fallout tends to appear in familiar forms, unpaid bunkers, unpaid port charges, unpaid hire, unpaid necessaries, crew claims, disputes with mortgagees and increasing pressure from creditors who no longer trust promises of payment tomorrow. In a stressed market, ship arrest ceases to be a technical procedural device and becomes what it has always really been, one of the most effective ways of obtaining security when the risk of non-payment is no longer theoretical.
All of this brings Gibraltar firmly into the picture. Gibraltar’s location at the gateway to the Mediterranean has always given it strategic maritime importance, but in times of shipping stress that geography becomes commercially and legally significant. The Port of Gibraltar is the largest bunkering port in the Mediterranean, and it sits on one of the busiest maritime corridors in the world, with more than 100,000 vessels transiting the Strait of Gibraltar annually. It is exactly the sort of jurisdiction in which the consequences of upstream disruption in the Gulf may begin to show themselves through defaults, claims and security actions against vessels calling to bunker, change crew or await orders.
In my view, Gibraltar has very real advantages as a ship arrest jurisdiction. One of its principal strengths is speed. If full instructions and supporting documents are available and the writ and affidavit are in order, an arrest can in practice be effected within hours. The Admiralty Marshal is available 24 hours a day, 365 days a year, so in urgent cases an arrest can be carried out at any time. That is no small advantage in a port where vessel calls are often short and commercially driven. Gibraltar is also commercially pragmatic from the owner’s perspective: once satisfactory security is provided, often by way of a P&I Club letter of undertaking or a first-class bank guarantee, release can usually be obtained very quickly.
Another practical advantage is that admiralty matters in Gibraltar are treated with priority by the Supreme Court. In a volatile market, creditors do not just want theoretical rights, they want a forum in which those rights can be exercised swiftly and effectively. Equally, owners and clubs want to know that if security is offered, release can be arranged without unnecessary delay. Gibraltar’s arrest jurisdiction works because it recognises both sides of that commercial reality.
None of this is to suggest that every shipping company calling at Gibraltar is about to default, or that every period of market stress will produce a wave of arrests. But if the present Iran crisis continues to keep oil prices elevated, insurance costs high and trading conditions unstable, I would expect an increase in payment pressure across parts of the shipping market. And where payment pressure rises, ship arrests tend to follow. For maritime creditors, lenders, bunker suppliers and others exposed to shipping counterparties, Gibraltar may prove to be one of the most effective points in the Mediterranean at which to convert concern into security.
Christian is a Partner at ISOLAS LLP, the oldest and one of the largest law firms in Gibraltar. He is acknowledged as one of the leading lawyers in Gibraltar in the fields of admiralty and shipping law.
For more information or for any enquiries, please don’t hesitate to contact Christian Hernandez on [email protected]