Mercuria takes Baltic Exchange to trial over Hormuz oil tanker benchmark

What happened

The Financial Times (FT) reported that Mercuria is fighting the Baltic Exchange in court after losses linked to the Strait of Hormuz, and that the case will test the exchange's decision to keep issuing price estimates for oil voyages through the strait during the conflict. According to TokenPost, the High Court is due to start hearing the case on Monday, October 26. Mercuria wants the court to declare invalid the TD3C tanker-rate assessments published since early March. It argues traffic through Hormuz dropped sharply after the US-Israeli war with Iran began on February 28, and that the exchange should have stopped publishing the rate.

What it means

TD3C tracks what it costs to hire a very large crude carrier for a voyage from the Persian Gulf to China. It matters well beyond the shipping world because traders use it to price and settle freight forward agreements, or FFAs, which are contracts that let companies lock in or bet on future shipping costs. Reuters has described the Baltic Exchange as the world's top provider of benchmark shipping indices. The London-based exchange is owned by Singapore Exchange (SGX), and its rates come from panels of shipbrokers who submit independent assessments; shipowners and charterers are not allowed to sit on those panels.

The two sides disagree on a basic question: was there still a real market to measure? In its original filing, Mercuria said the index no longer reliably reflected the trade it was meant to track, and estimated its losses at hundreds of millions of dollars. TokenPost reported that Mercuria later dropped its financial-loss claims and now seeks only a declaration that the assessments were invalid. Lloyd's List said the trader is no longer asking for the index to be restated, but wants it suspended and retroactively invalidated. The exchange counters that lawful passage through the strait remained possible, that ships kept sailing, and that quiet spells on a route are not unusual.

The numbers show why the stakes are high. Lloyd's List reported that TD3C hit a record of $1.41 million per day on October 8 before slipping about 7% to $1.31 million. If the court sides with Mercuria, Lloyd's List said outstanding TD3C FFAs and long-term charters linked to the index could face significant fallout, and the exchange's lawyers have warned that hundreds of trades might need to be unwound.

The case also raises a wider question about who carries the risk when a benchmark is stressed by war. At a preliminary hearing in May, a lawyer for the exchange argued that benchmark services would become unworkable if providers were liable to users, and said its liability was capped at a user's fee or £5,000. Judge Christopher Butcher fast-tracked the trial, pointing to wider market concern about the benchmark. Mercuria's lawyer also cited an earlier FT report that TotalEnergies was considering its own claim.

The bull case

For the Baltic Exchange and its owner SGX, a win would confirm that its rules held up under extreme stress and that panels of independent brokers can keep pricing a route even when few ships sail it. The exchange says it consulted the market and offered a back-up route. A clear ruling in its favor could also remove a cloud of uncertainty that it says has unsettled freight markets.

The bear case

If Mercuria wins, the fallout could be messy. Trades and charters settled against TD3C since March might need to be reopened, creating losses and disputes for whichever side had profited. Confidence in a widely used benchmark could weaken, and other users, possibly including TotalEnergies, might press their own claims. That could raise legal and reputational risk for the exchange and for SGX.