Commodity trader Mercuria is braced for a wave of contractual disputes, such as force majeure claims, as a result of the conflict in the Middle East, its chief financial officer has said.
Mercuria was one of several large trading houses to say this week that financial performance has been strong in the first months of this year, with price volatility and ample liquidity creating opportunities to respond to a dramatic drop in supply from the Gulf region.
However, Mercuria’s group CFO, Guillaume Vermesch, told the FT Global Commodities Summit in Lausanne that the trader is making provisions for disputes arising from the conflict.
“At some point, a settlement will come and the crisis will probably be over,” Vermesch said at the event today.
“We expect a lot of claims, with a lot of contractual disputes, a lot of force majeure interpretation, a lot of legal battles around that. That’s something we are going through very carefully, running different scenarios.”
Vermesch added that the trader’s risk assessment is “on the conservative side” and that it may be “painting things in a dark way”.
Speaking at the same event, Trafigura CFO Stephan Jansma said the sector could “potentially” face claims, but that it is “way too early to make predictions for the full year”. He added Trafigura is less active in the Gulf region than some of its peers.
Gunvor also anticipates some claims, though is “not seeing it yet”, said CFO Jeff Webster.
He said Gunvor also has relatively low exposure to the Gulf region and would not expect a rise in disputes to be a “significant factor” in its financial performance.
Legal experts told GTR last month that traders could be dragged into legal disputes following a series of force majeure declarations across the energy sector, including in Qatar, Iraq, the UAE, Kuwait and Bahrain.
In some cases, buyers may dispute that their seller has fulfilled the technical requirements of a contractual force majeure clause. It can also be challenging to pass force majeure claims down a chain of buyers, depending on how contracts are worded.
Another risk is if a trader has taken a hedging position on a commodities purchase that is then subject to a force majeure declaration, it could leave them exposed – particularly if they do not have a stop loss provision in place.
Despite the risk of claims, commodity traders said the price volatility driven by the crisis in the Middle East has put them in a solid position.
Vermesch said that the first quarter “has been very strong” for Mercuria.
Gunvor’s Webster said performance improved in the second half of last year and “has accelerated in Q1”. He added the sector has learned “a lot of lessons” from the turmoil in the gas market in 2022, and hailed banks for providing additional liquidity, including by “stepping in with backstop facilities”.
Trafigura’s Jansma said its performance before the crisis started was “very strong” and that the trader is “in a good place at the moment”.
