(Energy markets, force majeure story updated for events in Libya)
NEW YORK ( TheStreet) -- Oil prices weren't the only thing surging this week due to the chaos in Libya. Speculation about force majeure clauses being invoked in the energy sector as a result of the Libyan political crisis have also surged.
The last time force majeure was a major issue for the energy markets was with the Gulf of Mexico offshore drilling closure in the wake of the BP oil spill.
Force majeure is the clause within a contract that excuses a party from having to perform its contractual duties and absolves it of any liability when unanticipated extraordinary events occur.There have been reports this week that the Libyan government's national oil company is invoking force majeure. By Thursday, the CEO of Italy's Eni (E), which is most exposed to Libyan production among foreign oil companies, said that Libyan oil production had declined by 75%. The FT reported on Thursday that Saudi Arabia was discussing a plan to make up for the Libyan production disruption, either by directly shipping more oil to Europe, or shipping more oil to Asia so Western African oil intended for Asian market delivery could be to Europe. Italy and Ireland receive more than 20% of their crude imports from Libya, according to the most recent full-year energy market data. Spain is not far behind, receiving as much as 18% of its crude from Libya. China National Petroleum joined the list of foreign energy companies that had abandoned ship in Libya on Thursday, saying that after its Libyan offices came under attack it evacuated staff. China receives roughly 3% of its oil from Libya. It's safe to say that in the case of an OPEC country like Libya bombing its own citizens, energy sector force majeure is going to be an important topic for investors, said one energy law expert who requested anonymity because of his business relationship with international oil companies. Energy sector contracts in Libya that would also be subject to force majeure provisions would be those that join any government-run energy sector company to private companies in production-sharing or oil service contracts. The events giving rise to force majeure do not have to directly involve the contracted parties, either. A state-run oil company in Libya could invoke force majeure in terms of its contractual obligation to deliver oil, and a third party contracted to buy oil from a joint venture in Libya could invoke force majeure as well. Force majeure could be invoked in a contract related to making ports available for a shipping company wanting to pick up cargo in Libya or specifically lift oil from the Libyan ports. A host of contractual obligations would become subject to force majeure with any port closure and potentially impacting any party involved in the buying, selling and shipping of oil. During the Gulf of Mexico oil spill and moratorium on drilling, force majeure was employed by oil and gas companies in contracts with rig operators.