The New Houston Prize Court: What Energy, Shipping and Finance Clients Should Know

Introduction

The Southern District of Texas stands to become the epicenter of a legal battle originating from the United States’ armed conflict with Iran. On June 4, 2026, late in the evening, US military helicopters took to the air from the flight deck atop the USS John L. Canley, an Expeditionary Mobile Base (ESB) operating in the Indian Ocean. According to public reporting, the military aircraft’s target, a stateless vessel going by the name MT Davina, was flying a false Curaçaoan flag and carrying Iranian crude oil. The Davina, which had been under US sanctions since late 2024, was one of many oil tankers targeted by US Indo-Pacific Command (INDOPACOM) forces in an effort to bolster the blockades on Iran’s export and import of crude oil. INDOPACOM and other US-based assets in the region have now seized more than six million barrels of Iranian crude oil, but the question now weighing on the minds of downstream and midstream asset managers, stakeholders in neutral-flag ships, ship mortgagees and trade financiers stands: what happens next? The answer, somewhat surprisingly, finds its legal authority dating back to privateers, the American Civil War, and a brief resurgence under the Truman administration during World War II: Prize law. Reviving this dormant body of law, the United States District Court for the Southern District of Texas has adopted prize law rules and standing interrogatories that will position the court as the focal point for the gathering, storing, and, ultimately, the sale of seized Iranian assets. The following article details what interested parties need to know about the court’s promulgation of these rules and how to respond to the shifting landscape brought about by their adoption.

Key Takeaways

• On September 23, 2026, the US District Court for the Southern District of Texas adopted Prize Rules and Standing Interrogatories, and the Department of Justice has said it intends to use them to condemn Iran-linked tankers and crude as prizes of war. Three laden tankers seized by US forces are reported to be heading for the United States, with Texas considered the likely destination. No prize case has been publicly docketed or reported as of October 23, 2026.[1]
• A prize case is not a forfeiture case. There is no innocent-owner defense, no hardship release, no fee-shifting and no general discovery. The record is built by the capturing force and the court’s Commissioners, claims must be filed within 14 days, and cargo can be sold while an appeal is pending.
• Crews can be examined under oath, individually and without counsel in the room, and shoreside personnel may be asked the same questions. They cover the vessel’s insurance, ownership, voyage, AIS behavior and cargo, and the sworn answers are the record the government will rely on and your insurers can obtain.
• Most marine and property policies were not written for capture by the policyholder’s own government. US-form war-risk hull cover excludes it outright; London forms, cargo war clauses, P&I rules and sanctions clauses each contain a defense an insurer can raise. Notice windows run from 24 hours to a few days.
• Anyone invited to store, move, bid on or finance prize property has a sanctions question to answer first. No OFAC general license or FAQ addresses crude sold by a prize court, and interfering with prize property is a federal crime.

What Happened

Prize law is the body of maritime and law-of-war rules under which a belligerent captures enemy and, in defined circumstances, neutral merchant vessels and cargo, and brings them before its own courts for condemnation. The last time Prize law played a role in the US legal system was under the Truman administration toward the end of World War II. Federal district courts retain exclusive original jurisdiction over prize under 28 U.S.C. § 1333(2), and the prize statute, 10 U.S.C. §§ 8851–8881, applies to captures “during war.”

Since April 2026, during and between two periods of US naval blockade of Iranian ports (April 13 to June 18, and again since July 14), US forces have boarded and taken custody of several Iran-linked tankers, including the VLCCs Tifani, Majestic X and Lenore (also reported as Davina), together carrying roughly six million barrels of crude. In late August, Bloomberg Law reported, citing officials familiar with the plans, that the Justice Department had focused on the Southern District of Texas because of Houston’s port and storage capacity; US Attorney Aaron Reitz confirmed that prize proceedings are being revived and said his office is ready to represent the United States in them.

On September 23, 2026, Chief Judge Randy Crane signed General Order 2026-12 adopting 57 Prize Rules and a set of Standing Interrogatories, effective that day. The order states that the rules are effective; the court’s separate notice describes them as proposed and invites public comment through October 23, 2026, so revisions are possible. In outline, the rules provide that:

• the Capturing Authority must notify the court, a Commissioner and the US Attorney within 60 days and deliver the ship’s papers, electronic records and sworn “forward” interrogatories taken at or near the time of capture (Prize Rules in the Southern District of Texas, Rule 7, 16);
• the US Attorney must file a libel within 150 days of the property or its evidence arriving in the district, extendable for good cause, after which a warrant for arrest in rem issues and public notice runs for at least 30 days (Prize Rules in the Southern District of Texas, Rule 29, 33);
• any person asserting ownership or a properly perfected or secured creditor’s claim must file a Verified Statement of Right or Interest, under penalty of perjury, within 14 days of execution of process, with an answer due 21 days later (Prize Rules in the Southern District of Texas, Rule 33, 35(a) citing Fed. R. Civ. P. Supp R. C(6)(a));
• the case may be decided on summary judgment on the initial record; additional discovery (“Further Proofs”) requires a sworn showing of substantial ambiguity and exceptional necessity, and is unavailable where the record shows spoliation, concealment or false answers unless the claimant shows the defect is not attributable to it, the owner or the ship’s company (Prize Rules in the Southern District of Texas, Rule 52(a), 40(b));
• perishable or hazardous cargo, crude oil included, may be sold on an interlocutory basis where no ownership claim has been filed (and by court order at any stage where the court finds that the property is perishable, liable to deteriorate, or liable to depreciate in value under 10 U.S.C. § 8865), or released to a claimant on a surety bond at appraised value (Prize Rules in the Southern District of Texas, Rule 38);
• an appeal to the Fifth Circuit does not stay the decree, and a private party must post a bond to obtain a stay; the United States posts none (Prize Rules in the Southern District of Texas, Rule 56).

Following sale, under 10 U.S.C. § 8864, net proceeds of condemned property are paid into the Treasury of the United States. Gone are the days of spoils for the captors as prize money for the capturing crew was abolished in 1899 following an act of Congress historically noted in 30 Stat. 1007.

How Prize Differs From Civil Forfeiture

While seemingly accomplishing the same purpose as prize proceedings, civil forfeiture has also been used to take Iran-linked cargoes, including the Venezuelan-origin cargo aboard the Skipper, filed in February 2026 and now in litigation in the District of Columbia. Claimants for the Skipper’s cargo include the shipowner, terrorism-judgment creditors and a Texas county. Prize is a different procedure with different consequences for anyone with an interest in the property.

The practical consequence is that the decisions that matter are made before capture or in the first two weeks after: what papers are on board, what the crew says under oath, whether a claim is filed and by whom, and whether any insurer has been notified.

Who Is Exposed

Refiners, terminals, storage and midstream operators, and traders. Under Rule 9 of the General Order, Prize cargo brought into the district will be moored or otherwise secured and held in the custody of the US Marshal; should the cargo be sold, its position in the Southern District of Texas implicates potential use of the vast downstream and midstream capabilities already established in and around the port of Houston. The rules forbid moving or releasing arrested property without a court order, and 10 U.S.C. § 8878 makes it a federal offense, punishable by up to five years, to act on prize property with intent to defraud, delay or injure the United States or any claimant. Separately, Iranian-origin crude remains Iranian-origin after a court sale for purposes of the Iranian Transactions and Sanctions Regulations; the general license for domestic transactions in Iranian-origin goods already in the United States (31 C.F.R. § 560.518) does not reach blocked property or exports, and no OFAC general license or published FAQ addresses crude condemned as prize. In 2023 the Suez Rajan sat off Galveston for nearly three months before offloaders would handle her seized Iranian cargo, after the IRGC threatened reprisals against any company that unloaded it; in January 2024 Iran seized the same vessel, by then renamed St Nikolas. A company asked to store or bid on prize cargo should assume it needs a specific license or written comfort from OFAC, a title file built on the court’s sale order, and a view on reprisal risk before it says yes.

Owners, charterers and cargo interests on neutral-flag vessels. The current blockade advisory (JMIC 015-26, July 14, 2026) asserts a right of visit and search of Iranian vessels and any vessel suspected of carrying contraband, wherever located, and an April 16, 2026 advisory listed crude and refined products as conditional contraband. A neutral vessel can be taken for adjudication on grounds that include breach of blockade, carriage of contraband, false or irregular papers, and operation under enemy control; under long-standing Supreme Court precedent, a charterer’s intent to breach a blockade can be imputed to the ship. Crews of a boarded vessel can be examined under oath at sea by naval investigators, and shoreside personnel may be asked to answer the same questions later. War-risk cover and P&I war extensions were repriced or cancelled on 24 to 72 hours’ notice earlier this year, charterparty war-risk allocations are in dispute, and the LMA has published a condition, where incorporated in the policy, under which hull cover terminates at the moment any Hormuz transit fee is paid.

Lenders, ship-mortgage and trade-finance banks. Under Rule 35(a) of the General Order, a perfected mortgagee or secured cargo financier has standing to file a claim in a prize case, but under The Hampton and The Battle a mortgage or lien that existed before capture does not survive condemnation of enemy property, even where the lender is a loyal citizen acting in good faith. Claims arising after capture, such as towage or terminal services, may be asserted against the proceeds (The Siren; 10 U.S.C. § 8870(a)). A bank that financed a cargo later captured also faces FinCEN’s 2025 and 2026 red-flag guidance on Iranian oil smuggling, the statutory duty to retain and report funds in which a designated terrorist organization has an interest, and the personal exposure of any officer who signs a sworn Verified Statement.

Insurance Implications

Marine and property policies are written on the assumption that capture is something a foreign belligerent does to the insured. A capture by the United States, a sale ordered by a US court, or an Iranian reprisal against a Gulf Coast facility each tests wording that has rarely been litigated. The table lists the provisions a policyholder should read first.

Three timing points cut across every line. Hull and cargo underwriters commonly expect notice within 24 to 72 hours, and some 1995 Institute forms discharge the insurer automatically if notice is not given within twelve months. Notice of abandonment, which starts the constructive-total-loss analysis, should be given early and repeated, subject to the US-form warranty not to abandon before condemnation or expiry of the detainment period. And the court’s 150-day libel clock, the 14-day claim window and the 6- or 12-month detainment clock run on different triggers; a cargo can be condemned and sold before the detention clause matures, at which point the sale proceeds in the court’s registry become the property.

Enforcement and Compliance Implications

The Standing Interrogatories. The capturing force may examine the master, officers, supercargo and anyone else believed to know about title, nationality or destination, at or near the time of capture, using the court’s prescribed questions (Prize Rules in the Southern District of Texas, Rule 18(a)). Furthermore, the General Order prescribes that examinations are under oath, individual, recorded without the witness’s consent, and conducted without counsel present; a witness may consult counsel beforehand but not during (Rules 21, 23 and 26). The questions ask, among other things, whether the vessel is insured and by whom; who owns and controls the owning entity; whether any part of the vessel or cargo is owned for the benefit of an enemy state; whether the AIS or voyage records were falsified, and if so, on whose instruction; who owns and consigns the cargo; what communications from owners or charterers are on board; and whether the witness knew a state of war existed (Appendix B: Standing Interrogatories). The rules say a witness may decline to answer substantive questions, and the declination and reason are recorded. The sworn answers carry exposure under the false-statement and perjury statutes, no immunity attaches to them, and in the prize case itself false answers or missing papers bar a claimant from seeking further discovery.

The Verified Statement. According to Rule 35(a), a claim must be accompanied by a statement under oath, verified under penalty of perjury, setting out with particularity how the claimant lawfully acquired its interest. Furthermore, subsections (b) through (d) of Rule 35 go on to explain that the government may serve special interrogatories about the claimant’s identity and relationship to the property without leave of court, may ask the court to require a bond, and the court may sanction false or frivolous claims. An officer asked to sign should do so only on a documented chain of title and after a privilege review, because a sworn claim to own cargo that OFAC treats as Government of Iran property is itself a statement the government can use.

Sanctions and criminal exposure. Dealing in Iranian-origin crude or in property of the Government of Iran, including financing, brokering, transporting or guaranteeing it, remains prohibited for US persons under the Iranian Transactions and Sanctions Regulations, with willful violations punishable by up to 20 years under IEEPA. The Islamic Revolutionary Guard Corps has been a designated foreign terrorist organization since 2019, and the Justice Department has charged oil-network participants with providing material support. Non-U.S. companies in the petroleum and petrochemical sectors face secondary-sanctions exposure under Executive Order 13902. After a decree of condemnation, the cargo belongs to the United States, which changes the analysis for dealings with the Marshal, but no OFAC guidance confirms that chain for prize sales and the oil’s Iranian origin does not change.

Parallel proceedings. The forfeiture matters of the past three years were investigated by HSI and the FBI alongside the civil case, and in one case resolved with a corporate guilty plea and a deferred-prosecution agreement (the Suez Rajan matter, 2023); the Skipper matter is pending. A prize libel should be expected to arrive with the same companions: interview requests to terminal, trading and shipping staff, OFAC administrative subpoenas, and, for banks, suspicious-activity-report obligations under FinCEN’s 2025 advisory and May 2026 alert on Iranian oil smuggling. The Justice Department’s March 2026 corporate enforcement policy offers a presumption of declination for voluntary self-disclosure, full cooperation and remediation in sanctions and export-control matters, which makes an early, privileged internal review the first step whenever a company learns that cargo or a vessel it touched has been captured.

What to Do Now

1. Pull the actual wordings. Identify which war-risk hull form you have (American Institute or London Institute), whether a detainment clause has been endorsed and at what period, what your cargo war clauses say about frustration, and whether sanctions clauses and the LMA transit-fee condition have been added at renewal.
2. Build a notice calendar. Map every policy’s notice provision against three scenarios (U.S. capture or detention, Iranian seizure or attack, government investigation) and name the person who sends each notice within 24 hours.
3. Give masters standing instructions. Comply with boarding, do not resist or flee, answer identification questions, ask to consult counsel before substantive examination, and preserve every paper and electronic record on board; concealment is treated as proof against the claimant.
4. Decide in advance who may sign a Verified Statement, and on what record. Treat the request as a trigger for a privileged review, not a form to be completed in 14 days.
5. Do not pay, and do not let a charterer pay, any Strait of Hormuz transit fee. Where the LMA condition is in the policy, payment terminates hull cover from that moment; OFAC has said toll payments are not authorized; and the April 12 order directed the Navy to interdict toll-paying vessels.
6. Before storing, moving, bidding on or financing prize property, obtain OFAC confirmation or a specific license, a copy of the court’s custody or sale order, and an assessment of reprisal risk. Do not touch arrested property without an order.
7. Review terminal, storage and berth agreements, charter parties and letters of credit for government-seizure cooperation, hazardous-cargo and sanctions clauses, and for who bears the cost of a detention or condemnation.
8. Notice D&O and E&O carriers on any subpoena or interview request, and confirm that conduct exclusions require a final adjudication rather than an allegation.
9. Lenders: assume pre-capture security does not survive condemnation; evaluate mortgagee’s interest and trade-credit cover, the SAR question and the retain-and-report duty before deciding whether to file a claim.
10. Watch the docket. The first libel, the first Commissioner appointments and the first sale order will set the practice; the court’s comment period on the rules closes October 23, 2026.

Conclusion

Prize law is no longer a historical curiosity. With the promulgation of General Order 2026-12, it is an active authority backed by federal legislation. While these rules have national, and even international, significance given the conflict in Iran, the implications for the Southern District of Texas cannot be overlooked. This court has positioned itself as the court of first resort for these cases, and even though no libel has been filed, a prize case is almost an imminent reality for Texas. For energy, shipping and finance stakeholders, the most important decisions are those that take place before capture or in the two weeks after. The decisions made now are incredibly important for those with exposure to Iranian-linked cargo, vessels, or financing, and decision makers in those contexts must treat the General Order as a settled practice, not a page from the history books.

[1] Prize Rules and Standing Interrogatories for Prize Proceedings in the Southern District of Texas https://www.txs.uscourts.gov/sites/txs/files/09.23.2026_STAND_ALONE_SDTX_Prize_Rules_and_Standing_Irogs.pdf