The object of this article is not to study the economic problems posed to the industrial nations by the oil crisis of late 1973/early 1974 when the f.o.b. cost of crude oil increased rapidly to nearly 600 per cent. of its pre-crisis price, but the very pressing problem of finding a method of payment which safeguards the interests of both seller and buyer. In the past this problem did not exist as, until the end of 1973, the marketing of most of the available crude oil in the world was in the hands of the international oil companies who sold on a f.o.b., c. & f., or c.i.f. basis. Moreover, a large part of their sales was made to affiliates or associates. Further, at that time the average cargo of crude oil sold to a third party was sold at a price in the neighbourhood of $600,000. Today, the same cargo would cost c.i.f. $2,500,000.

The tremendous cost of oil today has changed the whole aspect of the question of payment. Previously, a supplier was prepared to give his customer terms covering payment at 30, 60 or even 120 days from the date of loading and trust him to make payment on the due date, the moment when the crude had already been received and treated. The amount of $2,500,000 referred to above covers a ship of 30,000 tons but today it is common for even a modest refinery to receive cargoes of 85,000 tons worth c.i.f. $6,500,000. With all the good will in the world and showing the utmost faith in the integrity of its customers no commercial organisation can take the risk of supplying cargoes of oil of this value, not to just one customer, but perhaps to dozens at the same time, without the debt being secured. This is especially true in these days of the interest taken by governments in the supply of oil and exchange controls. While foreign exchange will be forthcoming to pay for oil before it is delivered such a payment might be delayed if it has only to be made after delivery.

The oil companies turned to the system of bankers’ confirmed irrevocable documentary credits without perhaps first studying its mechanism to see whether it was suitable for their purposes. In the event, the peculiarities of the customs of the oil industry which up to then had operated rather in a “closed shop” among friends do not appear to have harmonised well with the careful precise procedure of the Uniform Rules, and both sellers and buyers have had the opportunity of learning by trial and error and appreciating the difficulties. Before examining some of these let us first examine the normal operation of the documentary credit system.

The classic situation is where “A” domiciled in one country wishes to purchase goods from “B” who is domiciled in another. “B” advises “A” of the cost, very often on a c.i.f. basis, and asks him to open a confirmed irrevocable