Navigating Uncertainty in the Strait of Hormuz: Legal Insights for Maritime Stakeholders Amid Rising Risks

Maritime Stakeholders and the Strait of Hormuz Crisis

The Strait of Hormuz is one of the world’s most strategically important shipping lanes, serving as a critical conduit for global trade, including commodities. The outbreak of direct hostilities between Israel and Iran is expected to disrupt established maritime routes and exert upward pressure on commodity prices.

For maritime stakeholders, the implications are profound. Shipping companies are already weighing the costly option of re-routing vessels, which would extend voyage times and increase operational expenses. At the same time, insurers have raised war risk premiums, with some reclassifying the Strait as a high-risk zone. These developments underscore the urgent need for coordinated risk management strategies among global maritime stakeholders to safeguard supply chains and mitigate economic shocks.

We highlight several key legal considerations for shipping stakeholders:

• Route deviation – Charterparties often include provisions allowing deviation from the agreed voyage route if necessary to protect the safety of the vessel and crew. Even in the absence of an express clause, shipowners or masters may rely on an implied right of deviation in emergencies. However, cargo interests should be aware that a charterparty term granting liberty to deviate is not automatically incorporated into the bill of lading. In such cases, recourse may be had to Article IV, rule 4 of the Hague/Hague-Visby Rules.

• Force majeure / material adverse change – Force majeure and material adverse change clauses offer contractual relief in the face of significant disruptions – potentially allowing parties to suspend obligations, renegotiate terms, or terminate contracts. However, the mere fact that performance has become more burdensome or costly may not, by itself, be a sufficient trigger. The applicability of such clauses in the context of the current conflict will depend on the precise wording, scope, and governing law of the contract (jurisdictions may vary in the threshold for invoking these clauses, with some requiring a high degree of foreseeability or impossibility).

   

• Safe port – A charterparty may contain an express or implied safe port warranty, which covers not only physical safety but also political stability and safety of approach. If a charterer nominates a port that is considered unsafe, the owner is entitled to reject the nomination. In a time charter, if a validly nominated port later becomes unsafe before the vessel arrives, the charterer is under an obligation to nominate an alternative safe port. Where the parties agree to discharge cargo at an alternative port, it is crucial to check the terms of the bill of lading. If the bill of lading specifies a particular discharge port without flexibility, discharging at a different port may amount to a breach of the contract of carriage.

   

• War risks – Industry standard forms may sometimes include an express provision for termination in the event of an outbreak of war. Such clauses (often called war risks clauses) vary in both scope and effect, and should be carefully reviewed to determine the extent of the owner’s rights under the relevant provision. In cases involving a chain of charterparties, the war risks clauses may not be aligned or “back-to-back”, potentially leading to complications in the contractual chain, and leave parties in the chain exposed.

Conflicts inevitably bring about heightened uncertainty and risk, particularly for businesses engaged in cross-border operations and trade. While not all consequences can be predicted or avoided, maintaining a proactive and clear-eyed assessment of evolving geopolitical developments is essential. Businesses would do well to closely monitor the situation, evaluate their exposure, and adapt operational, contractual, and risk management strategies accordingly.

For more information, please do not hesitate to contact:

Ian Teo: ian.teo@helmsmanlaw.com

Maureen Poh: maureen.poh@helmsmanlaw.com

Chen Zhida: zhida.chen@helmsmanlaw.com

Peter Huang: peter.huang@helmsmanlaw.com