A top Indian shipping executive, along with other industry sources, said firms will continue to ship Iranian crude despite limited insurance coverage.
European Union imposed tough new sanctions, effective from 1 July, on Iranian oil exports that also ban EU insurers and reinsurers from covering tankers carrying Iranian crude anywhere in the world. Western countries are home to around 90% of the world’s tanker insurance companies. As a result, companies from Iran’s top Asian buyers like China, India, Japan and South Korea are feeling threatened by the US-led sanctions.
India’s largest shipping firms, Shipping Corp of India and Great Eastern, along with other Indian tanker firms have asked state insurers for assistance and provide up to $50 million in third-party liability coverage per tanker voyage.
A supertanker carrying around 2 million barrels of crude would have a typical $1 billion coverage from reinsurers against personal injury and pollution claims.
Shipping industry sources in India said the country’s shipping companies are willing to take the risk of shipping Iranian crude despite being liable for any claims above $50 million in the case of an incident.
“To the best of our knowledge, over the last 10 years, none of the Indian shipping companies carrying Iranian crude oil into India has had any major incident relating to pollution or anything,” Shipping Corp Chairman S. Hajara told Reuters on the sidelines of an industry conference in Singapore.
“Since there have been no claims in 10 years, we felt if we have cover of $50 million as a commercial organisation it would be worthwhile for us to continue in that business.”
India, also the world’s fourth-largest oil importer, is one of the biggest customers for Iran’s 2.2 million barrels per day (bpd) of oil exports, which receives 10 crude shipments a month from Iran on average.
Analysts warned a major oil spill from one of these tankers carrying Iranian oil could leave shipowners liable for billions of dollars in damages.
“We have been very clear that Indian insurance companies will have a tough task, if not impossible, to get reinsurance if the sanctions really set in. We know if we ask for a huge amount of cover we will never get it,” Hajara said.
According to some industry experts, the only way to substitute the biggest reinsurers, mostly based in Europe, would be for governments of importing countries to provide federal guarantees to cover any expenses relating to personal and pollution claims.
Hajara said that Indian shipowners have asked the central government for sovereign guarantees, but are yet to receive a response. Indian firms, along with Japan and South Korea, have also lobbied European officials for exemptions to the EU sanctions.
Reports suggest Indian refiners are already cutting imports after coming under the light of US sanctions that demands Iran’s crude clients to significantly cut purchases. Refiners are pondering to cut imports by about a quarter in the 2012-2013 year that began on 1 April, but are willing to keep the remaining imports coming.
India imported around 340,000 bpd from Iran during the fiscal year that ended on March 31, compared with the 362,000 bpd committed under annual term contracts. It is currently importing about 280,000 bpd.
A finance ministry source insisted the Indian government would do anything to keep oil flowing from Iran, India’s second-biggest supplier after Saudi Arabia, including offering sovereign guarantees to shipments.
Reuters quoted a shipping source as saying that Indian shipping firms have sent their request to state insurers United India Insurance, General Insurance Company, New India Assurance Co. Ltd., National Insurance Co. Ltd. and the Oriental Insurance Co. Ltd. Indian shipping and finance ministries were also looking at the proposal, the source added.
A final decision is expected “very soon,” Hajara said.
Ship owners have also received warning from Japanese insurers who insist they will only cover one tanker at a time carrying Iranian crude through the Middle East due to their inability to provide cover without the European reinsurance market. Sources said this means a reduction in the number of tankers carrying Iranian oil, currently three or four a month, as each ship takes about a week to 10 days to travel in and out of the Gulf, compared with about 10 ships a month last year.
Japan has already cut its crude imports in April from Iran by nearly 80% compared to the first three months of the year.