Following on from our Iran Sanctions series, a selection of Clyde & Co's leading regional experts give their views on the unfolding picture across the Middle East and North Africa. We also include comment from one of our team who has been working on the ground in Egypt and Libya in recent days.
This is a fast developing picture, both on the ground and in terms of international action and we will be keeping you abreast of upcoming developments, particularly as regards the introduction of sanctions, for example against the Gaddafi and Mubarak families.
There has been significant disruption right across the region, most recently extending to Oman, and this inevitably has an impact on international commerce.
Of course we are watching developments very closely and talking to our clients about what recent events will mean for their and our businesses. We know that each of the markets in the Middle East are different and that people and companies within the region will view and react to events differently from those outside it. Local knowledge is key to making the most of opportunities as they arise.
Further updates relating to specific areas such as insurance, international trade and shipping will be issued in due course.
Libya and Egypt sanctions and other measures
The UN passed UNSCR 1970 (2011) on 26 February 2011 which introduced financial sanctions. At present they are targeted at Muamar Gaddafi, nine members of his family, and six close assistants. The resolution includes the freezing of assets, an arms embargo and a travel ban.
The UK in response adopted the Libya (Financial Sanctions) Order 2011, which gives effect to Resolution 1970 (2011) in the UK, and which came into force at 5:15pm on 27 February 2011 (very unusually, issuing legislation on a Sunday).
The EU as a whole has agreed to implement sanctions against Muamar Gaddafi, including an arms embargo, asset freeze and visa ban. The decision was made by the EU ambassadors meeting in Geneva, Switzerland.
The US has introduced sanctions including the freezing of the property and interests of Muamar Gaddafi and his sons, senior officials of the Government of Libya, and this is discussed in further detail by Doug Maag below.
Egypt has imposed its own measures against Mubarak and his family, including travel bans and the freezing of assets and has sought international assistance to effect an asset freeze.
Undoubtedly further sanctions will be issued by many states in upcoming days.
Emerging issues
OIL and GAS
Ben Knowles, partner
The markets have taken fright at the developments in MENA. They have been concerned by the obvious disruption in Libyan oil production but have already priced in the possibility from further very significant disruption. The extent of the impact from a higher oil price can only be guessed at but will undoubtedly have a significant impact on the global economy. More immediately, producers, explorers and contractors on the ground in Libya have faced problems which will inevitably lead to contractual and insurance claims. For example parties have already started declaring force majeure in relation to certain exploration projects and their entitlement to do so will be explored.
MARINE
Andrew Preston, partner
We have already been approached by a number of owners and charterers on safe port issues in Libya and elsewhere for example as to whether owners are entitled to refuse to load and discharge at Libyan ports. The confused factual position on the ground has raised some difficult issues.
VIEW FROM EGYPT
Sohair Mustafa, consultant
The 25 January revolution is redefining Egypt. The nation's primary concern remains securing safety pending reinstatement of a fully functional police force. Courts are functioning at a slower pace. High-profile local cases relate to the public prosecutor investigating various allegations of corruption and embezzlement by prominent business figures and politicians. Banks have recently reopened with restrictions on transfers and the Egyptian Stock Exchange remains closed due to a sharp decline on 25 January. However, the country appears to be on the road to recovery and the majority are optimistic about the country's future.
US DEVELOPMENTS
Doug Maag, senior counsel
On 25 February 2011 the US government issued sanctions as a result of recent developments in Libya. Among other things, the sanctions require US persons and companies to freeze the property and interests of Muammar Gaddafi and his sons, senior officials of the Government of Libya, those responsible or complicit in human rights abuses related to political repression in Libya and those who have materially assisted such abuses, and others. The sanctions also require freezing of the property and interests of the Government of Libya and its agencies, instrumentalities and controlled entities, and of the Central Bank of Libya. It is important to note that the sanctions have immediate effect and apply notwithstanding any pre-existing contract. It is expected that applicable regulations will issue from the Office of Foreign Assets Controls in due course.
BILATERAL INVESTMENT TREATIES
John Whittaker, partner
Clyde &Co have extensive experience in investor claims both at a bi-lateral level and in connection sovereign immunity issues as well as issues relating to State succession. Tunisia, Egypt and Libya all have extensive bi-lateral treaties which potentially may provide viable remedies for investors.
BONDS and GUARANTEES
Stephen Tricks, partner
The current crisis may trigger a spate of calls on standby letters of credit, guarantees and bonds. This raises several issues for contactors, suppliers, banks and insurers. Is the instrument payable on demand or does it require proof of liability? Is the demand fraudulent? What is the effect of any applicable sanctions? Is there a right of recovery?
INSURANCE
Andrew Grant, partner
The turbulence in the Middle East and North Africa will have an impact on property insurance and issues will arise as to whether the damage was politically motivated or not. For example, was a loss caused by parties who were taking part in the demonstrations and as a result of the protests for regime change, or was the damage incidental to the disruption and caused by casual looters and criminals? This leads to the question of whether it will fall to All Risks Property insurers or Political Violence insurers.
The political risks insurance market is also watching these developments closely. There will be exposure to contractual performance in Egypt, Libya, Tunisia, Bahrain and the wider region, including performance bonds on construction projects and, no doubt, trade will be disrupted. Andrew Grant, a partner in our Political Risks team says: "Looking to the future, any regime change carries with it the risk that a new regime will not favour the inward investment and trading partners encouraged by the deposed regime. This could significantly impact political risks insurance cover written in these territories".
TOURISM and TRAVEL
Scott Aitken, partner
Recent events are having a major impact on all tourism related business endeavours; in particular hotel operators are looking closely at their performance covenants. Also relevant will be due consideration of contractual and, where they exist, statutory force majeure provisions. The strength of relationships of hoteliers with vertically aligned businesses such as airlines and cruise companies will also be tested.
But with so many moving pieces its difficult to say how things will play out. This region is and will remain a key emerging market - in the past the UAE has been seen by many commentators as the safe haven and it may well be that once again this turns out to be the case for major corporate and foreign multi nationals. So far its business as usual here.
PROJECT FINANCE
Peter Gray, partner
Some banks say they won't lend any more money because of some demonstrations in the capital, hundreds of kilometres away. With such political instability, will they keep lending on projects? Can they stop? How will their attitude change to regional risk?
PROJECTS
George Booth, partner
How current events may affect the pace of energy and infrastructure projects being tendered and developed remains to be seen. Without exception however, all those countries currently affected already had plans in place to significantly develop their energy and social infrastructure. The need to implement these plans is likely to be even more pressing when the current issues are resolved. This is clearly not a time for knee jerk reaction. However government, developers, contractors and lenders should be reviewing their current contractual strategies in relation to the minimisation of legal and commercial risk. Relevant provisions for attention may include those relating to force majeure, export control, economic stabilisation and price reopener.
COMPLIANCE and REGULATORY
Lisa Kelaart-Courtney, Head of Compliance Advisory Services
A heightened risk for all regulated entities is the flow of funds from countries currently experiencing unrest. In particular firms need to be extra vigilant in enhanced due diligence procedures for politically exposed persons, close associates or family or legal structures owned or controlled by politically exposed persons, close associates or family. Firms need to remain abreast of announcements from the United Nations, Transparency International and regulators and ensure their practices are exceptionally robust. Steps need to be taken not just for new business but existing relationships.
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.
