The New England Petroleum Corporation (NEPCO), a U.S. corporation, obtained refined oil from its wholly owned Bahamas subsidiary refinery, PETCO. In 1968, PETCO entered into a long-term contract to purchase crude oil from Chevron Oil Trading (Chevron), a branch of a petroleum company that held 50 percent of an oil concession in Libya. In 1973, Libya nationalized several foreign-owned oil concessions, including Chevron’s. As a result, Chevron terminated its contract with PETCO.

PETCO then entered into a new contract with the National Oil Corporation, which was wholly owned by the Libyan government. One month after execution of the contract, Libya imposed an oil embargo on the United States, and National canceled its contract with PETCO. Three months later, after a dramatic increase in oil prices, PETCO executed a new contract with National. National allegedly breached that contract as well.

PETCO’s assignee, Carey, brought suit against National, seeking to recover damages for National’s breach of the two contracts. National raised the defense of sovereign immunity. Carey claimed that there was no sovereign immunity under the Foreign Sovereign Immunities Act because the breach of contract was an act outside the territory of the United States in connection with a commercial activity that caused a direct effect in the United States. Who should prevail? [Carey v. National Oil Corp., 592 F.2d 673 (2d Cir. 1979).]