The impact of sanctions has become a central strategic concern for commodity trading businesses. In this context, Daniel Martin and Amanda Rathbone, partner and knowledge advisor in commodities at HFW, have examined changes in the sanctions environment and their impact on the trade of energy commodities, oil, gas, metals, and agricultural products.
New Challenges in Commodity Trade
Martin and Rathbone warn that the sanctions environment is changing rapidly, and risks can significantly shift throughout the process of a transaction, from initial negotiations to shipping, financing, and payment. As a result, companies are increasingly compelled to reassess traditional compliance processes and adopt broader and more dynamic risk management strategies.
Read more: Analysis of Welfare and Future of Iran's Oil Industry Retirees
For commodity traders, geographical risk is no longer a background issue in a transaction. It is now at the forefront of the agenda, and for good reason: depending on the jurisdiction, it can determine whether a trade is both permissible and economical, whether banks will finance it, and whether insurers will cover it.
International Differences in Sanctions Approaches
The HFW report highlights major challenges arising from increasing differences between key sanctions regimes. The United States, the European Union, and the United Kingdom are no longer necessarily aligned in their approaches towards countries like Russia and Iran. These differences have created a complex compliance landscape where an activity permitted under the laws of one jurisdiction may be subject to restrictions or further scrutiny in another jurisdiction.
Companies operating internationally now have to manage multiple sets of restrictions that sometimes overlap and at times contradict each other. They must avoid over-reliance on traditional compliance procedures, as changes may have occurred during a transaction.
The report also emphasizes that sanctions programs have expanded beyond their traditional focus on military goods and advanced technologies. Governments are increasingly using sanctions as a tool for broader geopolitical policies, meaning that ordinary business activities and seemingly routine commodity transactions may now also come under scrutiny.
Meanwhile, retaliatory measures taken by other countries add further layers of complexity. HFW warns that efforts to comply with the sanctions requirements of one jurisdiction can lead to increased exposure to conflicting regulations elsewhere, creating significant business and legal challenges for international trading businesses.
Furthermore, when companies based in Europe, the UK, or the United States exit sanctioned markets, business activities often shift to jurisdictions that have not adopted similar restrictions. This can lead to situations where, while a particular trade has "moved outside its traditional markets, it does not inherently indicate inappropriate activity," it may involve participants who wish to obscure the true nature of a transaction through intermediaries, opaque corporate structures, unusual trade routes, or misleading documentation.
The HFW report recommends that transportation businesses pay special attention to changes in counterparties, shipping arrangements, ownership structures, documentation, and payment mechanisms, as these can be indicators of sanctions-related risks.
Read more: Deployment of 6000 Sailors in the Strait of Hormuz Due to Increased Attacks · Russia Restores Diesel Exports to Previous Levels
