Jaison K. John (l) is a commercial lawyer with experience in international commercial and regulatory matters. Danish Shadab (r) has nearly a decade of commercial experience in the maritime industry

We live in unprecedented times, in a world plunged into never-ending wars. It almost seems akin to a game of whack-a-mole, where you whack one war, and another pops up. Such wars have taken a toll on the oil industry, with the rising cost of oil resulting in increased bunker fuel costs.

The US and Iran war of late February 2026 triggered the latest global price shock. In Singapore, the price of VLSFO more than doubled from a pre-war baseline of about USD 521.5 per tonne to a peak of USD 1,100 to 1,120 per tonne by mid-March, a jump of roughly 110% to 115% in just a few weeks. By September 2026, prices had pulled back from those highs but were still trading at an average of USD 863 per tonne, about 65% above their pre-war levels.

The latest capture of the Bab al-Mandeb Strait in the Red Sea by the Houthis on September 10, 2026 may further strain supply. In such situations, the risks associated with entering into bunker fuel agreements become greater. While the risks are many, we look at two interesting risks that we have seen in publicly available bunker fuel agreements used by leading bunker fuel traders:

1) Liquidated Damages Risk

Bunker fuel agreements tend to be one-sided, considering that bunker seller-issued agreements are commonly used and often entered into on an as-is basis (i.e., the agreement is executed without any amendments). Accordingly, bunker sellers often incorporate liquidated damages in the form of interest for late payment.

Liquidated damages can be an effective mechanism to incentivise timely payment. The peril arises when there is no overall cap: a single stem for a large containership can easily run into seven figures, and with interest rates at multi-year highs, uncapped compounding interest could, on paper, exceed the cost of the bunkers themselves..

There is an irony here. Such uncapped interest may be characterised as a penalty rather than a genuine pre-estimate of loss. Courts in several jurisdictions are unlikely to enforce liquidated damages that operate as a penalty: England applies a "legitimate interest" test that scrutinises disproportionate terms, many US states simply refuse to enforce penalties, and some civil law courts will reduce them. The result is the worst of both worlds: a clause that terrifies buyers in negotiation but may collapse when tested.

To circumvent this issue, experts suggest inserting a clause stating that if the maximum rate of interest permitted by the laws of the country where a claim is brought is lower than the contractual liquidated damages rate, then the legally permitted maximum rate in the relevant jurisdiction will replace the contractual rate.

While this language might work in some jurisdictions, in others it may face enforceability issues due to a lack of certainty as to the applicable interest rate. As such, the safest approach would be to stipulate a maximum limit for liquidated damages.

2. Contamination Risk

When supply is tight, and blending pools are churning, the incentive for unscrupulous sellers to cut corners grows. This is not merely a theoretical concern.

In February and March 2022, high sulphur fuel oil supplied in Singapore was found to be contaminated with cyclic petrochemical oils; reports suggested several hundred vessels were affected, with consequences ranging from clogged filters and injector damage to scavenge fires and main engine failures.

Houston saw its own contamination episode with petroleum naphtha a few years earlier. One bad stem can cost a shipowner far more in repairs, off-hire, and reputation than the fuel itself.

When such danger lurks around the corner, it is prudent for bunker fuel buyers to evaluate the kind of sampling tests that they should consider. Perhaps enhanced bunker fuel tests, such as Gas Chromatography-Mass Spectrometry (GC-MS) or other advanced testing methods, may provide greater deterrence against contamination risks.

However, such advanced tests may require more time, and supplier-issued bunker fuel agreements tend to provide a shorter period within which to raise a quality claim, typically in the range of 7 to 15 days from the date of delivery, with some sellers providing a longer period. This conundrum results in a scenario where the contractual time limit for bringing a claim may expire if the tests are not completed within the required timeframe, making contractual claims for quality issues challenging to pursue. Therefore, it is quite important for buyers to factor these timelines into the contract prior to execution to avoid enforceability issues arising from bunker fuel contamination.

What Lies Ahead

While it may sound too easy to go in guns blazing to address some of these risks through contractual amendments to a bunker fuel agreement, the larger issue lies in bunker fuel sellers understanding the principles behind the amendments and appreciating that these measures are a means of adding value to the bunker fuel industry.

With that said, some pre-emptive steps that bunker fuel buyers can take include entering into a framework agreement with a bunker fuel seller. This allows contracting parties to lock in certain contractual principles, with the option to adapt some of those principles through purchase orders issued under the framework agreement. Framework agreements give contracting parties greater certainty regarding contractual risks and speed up the process of purchasing bunker fuel, as the scope for negotiating contractual amendments is usually quite limited once the framework is in place. They can also help bunker fuel traders improve their relationships with buyers, potentially resulting in more reliable and predictable purchases.

Where framework agreements are not feasible, it is prudent for buyers to plan bunker fuel purchases in advance, factoring in the time required to negotiate a bunker fuel agreement. This is particularly important when compared with a last-minute purchase, where the need to access fuel immediately may result in less time to negotiate and balance the contractual risks associated with the bunker fuel agreement.