Your Counterparty Was Sanctioned. Now You Own the Problem.
Quote from chief_editor on May 20, 2026, 3:30 pmSanctions on a counterparty after contract signing leave the compliant party with contractual obligations they cannot legally fulfill. The exit is not obvious.
A commodity trading company signs a contract to sell 25,000 tonnes of wheat to a buyer in a jurisdiction that was, at the time of contracting, entirely lawful to trade with. Three months later — between the contract signing and the delivery date — the buyer's country becomes subject to new export control or sanctions measures that prohibit the transaction. The wheat is already loaded on a vessel. The seller cannot legally complete the delivery. The buyer cannot legally receive it.
This is not a hypothetical scenario. It has played out across multiple commodity classes and multiple jurisdictions over the past decade as sanctions regimes have expanded, changed scope, and been applied retroactively to transactions in progress.
The legal position of the seller in this situation is uncomfortable in multiple directions simultaneously. Completing the transaction violates sanctions law and risks severe penalties — civil and potentially criminal — along with loss of correspondent banking relationships with U.S. and EU banks that are essential for dollar-denominated commodity trade. Not completing the transaction is a breach of the sale contract, and the buyer — who may be entirely innocent of whatever conduct triggered the sanctions — has a valid breach of contract claim.
The Force Majeure Clause May Not Cover This
Most commodity contracts include force majeure clauses that excuse performance when it becomes impossible due to events beyond the parties' control. Whether new sanctions constitute a qualifying force majeure event depends on the specific language of the clause, the governing law of the contract, and the jurisdiction of the dispute resolution forum.
Under English law, which governs many commodity contracts, sanctions-based impossibility of performance has been analyzed in court and arbitration cases with varying results. Some cases have found that sanctions-based impossibility constitutes a qualifying force majeure event; others have found that the affected party had knowledge that could have led them to anticipate the risk, or that the specific language of the clause did not cover government-imposed prohibitions. The outcome is fact-specific and jurisdiction-specific, and relying on force majeure without specific legal advice on the applicable clause is not a reliable strategy.
The alternative legal mechanisms — frustration of contract, illegality — also have variable and jurisdiction-specific application. There is no universal rule that "being sanctioned out of a trade" automatically excuses the seller from liability.
Screening Is Not a One-Time Event
Most large commodity trading companies have counterparty screening procedures that check new counterparties against sanctions lists at the time of contracting. This is necessary but not sufficient. A counterparty who is clean at signing may appear on a sanctions list at any point during the contract period. The same is true for vessels, ports, and intermediaries involved in the transaction.
Industry estimates suggest that the velocity of sanctions changes has increased substantially since 2014 — with significant new designations in 2014, 2017-2019, 2022, and subsequent years adding hundreds of entities across multiple programs. Commodity traders who operate in regions where geopolitical risk is elevated need screening systems that are continuous rather than one-time — that check counterparties, vessels, flags, and ports throughout the transaction lifecycle, not just at the point of contract signing.
The correspondent banking dimension compounds this. U.S. and European correspondent banks that process dollar and euro payments for commodity trades conduct their own sanctions screening. A transaction that looks legally compliant from the commodity trader's perspective may be declined by the correspondent bank based on the bank's own risk assessment — which may be more conservative than the trader's. A bank declining to process a payment does not resolve the trader's legal obligations to their counterparty. It simply means the payment cannot be made through that particular channel.
Traders who have not thought carefully about what they would do if their counterparty was designated between contract and delivery — which specific clause in their contract they would rely on, which legal counsel they would call, which licensing application they might need to file for a wind-down authorization — are treating a known category of risk as though it is unforeseeable. It is not unforeseeable. It is a risk with a probability that can be estimated and a consequence that can be planned for.
Sanctions on a counterparty after contract signing leave the compliant party with contractual obligations they cannot legally fulfill. The exit is not obvious.
A commodity trading company signs a contract to sell 25,000 tonnes of wheat to a buyer in a jurisdiction that was, at the time of contracting, entirely lawful to trade with. Three months later — between the contract signing and the delivery date — the buyer's country becomes subject to new export control or sanctions measures that prohibit the transaction. The wheat is already loaded on a vessel. The seller cannot legally complete the delivery. The buyer cannot legally receive it.
This is not a hypothetical scenario. It has played out across multiple commodity classes and multiple jurisdictions over the past decade as sanctions regimes have expanded, changed scope, and been applied retroactively to transactions in progress.
The legal position of the seller in this situation is uncomfortable in multiple directions simultaneously. Completing the transaction violates sanctions law and risks severe penalties — civil and potentially criminal — along with loss of correspondent banking relationships with U.S. and EU banks that are essential for dollar-denominated commodity trade. Not completing the transaction is a breach of the sale contract, and the buyer — who may be entirely innocent of whatever conduct triggered the sanctions — has a valid breach of contract claim.
The Force Majeure Clause May Not Cover This
Most commodity contracts include force majeure clauses that excuse performance when it becomes impossible due to events beyond the parties' control. Whether new sanctions constitute a qualifying force majeure event depends on the specific language of the clause, the governing law of the contract, and the jurisdiction of the dispute resolution forum.
Under English law, which governs many commodity contracts, sanctions-based impossibility of performance has been analyzed in court and arbitration cases with varying results. Some cases have found that sanctions-based impossibility constitutes a qualifying force majeure event; others have found that the affected party had knowledge that could have led them to anticipate the risk, or that the specific language of the clause did not cover government-imposed prohibitions. The outcome is fact-specific and jurisdiction-specific, and relying on force majeure without specific legal advice on the applicable clause is not a reliable strategy.
The alternative legal mechanisms — frustration of contract, illegality — also have variable and jurisdiction-specific application. There is no universal rule that "being sanctioned out of a trade" automatically excuses the seller from liability.
Screening Is Not a One-Time Event
Most large commodity trading companies have counterparty screening procedures that check new counterparties against sanctions lists at the time of contracting. This is necessary but not sufficient. A counterparty who is clean at signing may appear on a sanctions list at any point during the contract period. The same is true for vessels, ports, and intermediaries involved in the transaction.
Industry estimates suggest that the velocity of sanctions changes has increased substantially since 2014 — with significant new designations in 2014, 2017-2019, 2022, and subsequent years adding hundreds of entities across multiple programs. Commodity traders who operate in regions where geopolitical risk is elevated need screening systems that are continuous rather than one-time — that check counterparties, vessels, flags, and ports throughout the transaction lifecycle, not just at the point of contract signing.
The correspondent banking dimension compounds this. U.S. and European correspondent banks that process dollar and euro payments for commodity trades conduct their own sanctions screening. A transaction that looks legally compliant from the commodity trader's perspective may be declined by the correspondent bank based on the bank's own risk assessment — which may be more conservative than the trader's. A bank declining to process a payment does not resolve the trader's legal obligations to their counterparty. It simply means the payment cannot be made through that particular channel.
Traders who have not thought carefully about what they would do if their counterparty was designated between contract and delivery — which specific clause in their contract they would rely on, which legal counsel they would call, which licensing application they might need to file for a wind-down authorization — are treating a known category of risk as though it is unforeseeable. It is not unforeseeable. It is a risk with a probability that can be estimated and a consequence that can be planned for.