SHIPPING law firms are fielding a significant uptick in calls from owners and operators seeking advice to mitigate counterparty risk in the increasingly likely event that sanctions are imposed on Russia.

While shipping security analysts are downplaying the physical risk of shipping getting caught in military action the legal fallout could present significant challenges to maritime businesses exposed to Russia.

The escalating situation on the border between Ukraine and Russia has already led to calls for international trade sanctions to be imposed. However, uncertainty over what form the sanctions would take have left shipping and trade executives second-guessing what areas might be affected.

According to several specialist sanctions lawyers contacted by Lloyd’s List there has been a steady stream of urgent calls from owners and charterers seeking checks on counterparty agreements potentially exposed to Russian sanctions. Clients are interested in proactive measures they can take now to lessen any potential impact those sanctions may have on their existing and future business in the region.

In several cases the checks have been specific to voyages already underway destined for Russia.

President Joe Biden has already stated that the US is prepared to impose export controls on critical sectors of the Russian economy if Russia’s president Vladimir Putin invades Ukraine, but the specifics of sanctions plans likely to be imposed by US, the European Union and potentially the UK remain unclear.

According to Daniel Martin, a partner and sanctions specialist at law firm HFW, new sanctions are likely to include further asset freezing measures, targeting individuals and entities, including commercial organisations, which are not currently subject to asset freezing measures.

“I don’t think it’s a question of whether there will be sanctions, it’s a question of what will they look like,” said Mr Martin.

“It seems likely that new sanctions would also include further restrictions on the Russian financial sector. These could include the extension of sectoral sanctions to prohibit dealing in new loans and new debt issued by a wider range of Russian entities. They could also include more general restrictions on dealing with Russian financial institutions and possibly restrictions on the provision of insurance.”

It is possible that future sanctions might include additional measures which target the trade in particular commodities. There is also a recent precedent of specific ports being targeted by sanctions in order to restrict trades.

Iranian port operator Tidewater was targeted by US sanctions in 2011, in effect cutting trade to Iran, while Libyan port entities were selected for targeted asset-freezing mechanisms.

Another possible type of measure which might be imposed is a prohibition on the supply of particular items to Russia. Currently there are restrictions on the supply of some oil and gas equipment and related services to Russia, but the list of equipment could be extended.

Lawyers have advised clients to review all activities related to Russia, Russian counterparties and Russia-origin goods, including specific checks on beneficial ownership links rather than just registered business details.

“Owners should be reviewing their contractual provisions involving Russian trade to determine what clauses they can potentially rely on if they need to quickly end Russian trade,” argued Leigh Hansson, a partner and sanctions specialist at the law firm Reed Smith.

“They should also consider whether they need to firm up any ‘informal’ contractual relationships with Russian counterparties in the event the regulators offer any wind down or ‘grandfathering’ provisions in any new sanctions. Those operating in the region will want to be sure they aren’t left behind,” she said.

Meanwhile, security consultants have downplayed the risk to shipping, arguing that a full-scale invasion was the least likely scenario and the two countries would try to avoid interfering with international merchant shipping.

Risk Intelligence chief executive Hans Tino Hansen said any armed conflict would have immediate impacts in the northern Black Sea. The Ukrainian ports of Mariupol, Odessa and Yuzhne would probably become targets, while the Russian ports of Novorossiysk, Sevastopol, and the Kerch Strait, would be at risk as well.

But the risk to internationally trading ships was “very, very low” besides that of ships caught in the wrong place at the wrong time.

“International shipping won’t go there, at least until people can find out what is actually happening,” Mr Hansen said.

“People who are trading in these areas, they need to make sure they understand the risk of this happening and that it will impact trade in the Black Sea. And it may impact international trade as well because of the secondary effects of sanctions.”

Higher tension between Nato countries and Russia could impact freedom of navigation in certain parts of the Black Sea, and the Baltic and Barents seas, he added.

Control Risks associate director Cormac McGarry said Ukraine’s Azov Sea ports were the only areas of significant concern for clients right now. In the event of invasion, Mariupol in particular would likely become a conflict zone. What is more likely is a “limited escalation”, which could see ships held up at the Kerch Strait.

“It’s unlikely that anyone’s going to stop commercial shipping completely because everybody needs it,” he said.

Russia could seize Ukrainian navy ships coming through the Kerch Strait, as it did in 2018, prompting Ukraine to enforce martial law in its Black Sea and Azov Sea port districts.

Mr McGarry said Western sanctions that already cover maritime trade with Crimea could be applied to other areas, such as the Donbass in eastern Ukraine, if the Russians seized them.