When Markets Freeze, Benchmarks Must Not Invent Reality, by Fransiscus Nanga Roka

When a market has been disrupted by war, attempting to provide a precise number from a benchmark that was intended to represent the market, may be nothing more than creating the illusion of certainty.

The difficult question that lies at the heart of Mercuria Energy Trading’s lawsuit against Baltic Exchange Information Services.

The claim filed in London’s High Court on April 30, 2026, is a challenge to the continued publication of the TD3C, the Gulf to China Crude Tanker Benchmark, after the Strait of Hormuz effectively ceased to be a viable route for commercial use due to the US-Israeli war with Iran. Mercuria claims that inaccurate assessments have led to significant losses in both physical freight contracts and derivatives. These are still allegations, not judicial findings.

The Baltic Exchange has denied being in breach of any of its legal, contractual or regulatory requirements. The Baltic Exchange claims that its benchmark indexes use strong methodology, governance and controls. The Baltic Exchange should be given the opportunity to present their side of the story; if a market is experiencing great shortages it could generate extremely high prices, but this would not make a benchmark invalid.

Lawful passage and representative trading are two very different concepts. Baltic claims that shipping continued through the strait of Hormuz; and, therefore, its brokers were able to continue assessing freight rates. Mercuria disputes how accurately the assessments reflected what was actually occurring in the market. A trial date of October 26 has been set.

This difference is significant because a published benchmark provides information about the state of affairs as well as providing guidance on how to make payments based on the benchmark. In addition, the movement of the benchmark can be used by forward freight agreements to create potential profit or loss. As such, the methodological decisions made can result in the redistribution of wealth despite being faced with extremely difficult physical voyage situations.

: Misplaced confidence is the danger; a number may continue to have a format that we are used to, however, the facts that support the number are becoming weaker.

In addition to showing how expensive its hedging was, Mercuria will have to do more than simply show that it had to pay more for hedging than what it expected. When you replace one route through the Persian Gulf with another that is unaffected by the geopolitical problems in the region, you are eliminating the exact geopolitical risks the other parties in your contract agreed to accept.

A different type of risk is created by retroactively making changes to the contract. When you attempt to correct what you perceive to be an unfair advantage gained through deception, you are also altering the other party’s legal rights and obligations. Mercuria has asked for a suspension or an alternative way to assess the damages that includes retroactive adjustments. As a result, this request will need to be carefully examined.

The court should consider the approach used by the parties, their responsibilities under the contract, the regulatory framework governing the dispute, and what caused the loss; however, it cannot make a decision based on whether one of the possible commercial results seems more reasonable than others.

Regardless of what happens with the decision, five key changes are needed.

First, you must provide the user with benchmark reliability indicators as well as the price of each indicator. The reliability indicators should include transaction availability, contributor concentration, reliance upon an expert’s opinion or judgment, and any unusual market conditions. Do not allow your accuracy to mask the existence of uncertainty.

Second, develop crisis management policies prior to any event. These should include what constitutes an increased level of review (scrutiny), when and how to conduct alternative assessments, when and how to suspend operations, and when and how to resume operations. Additionally, provide explanation as to which individuals have authority to make decisions and how conflict of interest is managed.

Third, include in freight contracts and derivatives explicit provision for alternative arrangements. These should include specification of alternative routes, adjustment formulas and settlement procedures; recognizing that alternatives may create significant basis risks.

Fourthly, examine potential limitations on accountability without requiring administrators to act as underwriters for all trading losses. Accountability must be based upon an obligation that has been violated, proof that it has been violated, and evidence that the violation caused damage.

Fifth, require independent crisis reviews that can provide access to assessment records and decision making in governance. While consultation may be helpful, the preference of market participants will not replace methodological validity.

In addition to ensuring that the settlement price remains the primary focus, the safety of the seafarer must also remain a top priority. A settlement price should never be used as a guarantee that a voyage will be either commercially or physically safe.

The city of London’s financial reputation relies upon its ability to create contracts which can withstand extreme fluctuations in the market, as well as the creation of benchmarks which are intellectually honest.

A well functioning market is capable of sustaining scary price levels; however, it cannot sustain absolute certainty over what used to be a stable market where the underlying principles of the market were altered.

The most basic obligation is to assess what exists; identify those areas that are questionable; and do not allow your focus on continuing forward to serve as a reason for misrepresenting your assessment.

Fransiscus Nanga Roka

Faculty of Law University 17 August 1945 Surabaya and Managing Partner Law Firm Victorious Indonesia