Insurance at risk from Iran embargo

European foreign ministers are to meet on Friday to discuss whether insurers and reinsurers can continue providing cover for tankers carrying Iranian crude after the European Union's oil embargo comes into force in July.

Their meeting follows an announcement by China that it will not allow the EU embargo to disrupt its shipments of crude oil from Iran. There has also been rising pressure from tanker operators across Asia for the insurance ban to be lifted.

The EU oil embargo, approved in January to prevent member states from importing Iranian oil from July, also bans EU insurers and reinsurers from indemnifying vessels carrying Iranian crude to any destination in the world.

At least 95 per cent of the world's tankers are insured by the 13 members of the International Group of P&I Clubs, based in London, and the ban is a way of ensuring that Iran's biggest crude buyers are unable to import Iranian oil. Japan, South Korea and India are Iran's top four oil customers, buying more than half of the Opec producer's exports, and they are seeking to block the insurance clause.

This month it was reported that exports of Iranian crude declined by 300,000 to 400,000 barrels per day (bpd) from last year's average of 2.2 million bpd, according to calculations by Barclays Capital.

Charterers and shipowners say that tanker operators with protection and indemnity insurance cover from the P&I clubs based in Europe are already refusing crude cargoes loading from Iran, despite being offered a premium on standard rates.

The P&I clubs provide insurance cover for risks such as third-party liabilities. These include a carrier's liability to the owner of a cargo for damage to the cargo, the liability of a ship after a collision, environmental pollution and war risk insurance.

However, the EU embargo states: "It shall be prohibited to provide, directly or indirectly, financing or financial assistance, including financial derivatives, as well as insurance and reinsurance, related to the import, purchase, or transport of Iranian crude oil and petroleum products."

China's position was revealed in Hong Kong by Yan Zhichong, the general manager of the tanker operator China Shipping Development. He told reporters that China's ministry of transport and the National Development Reform Commission had held special meetings on ways to help shipping companies secure insurance, including nominating an insurer to cover oil shipments from Iran once sanctions took effect.

"The attitude is clear - we must make sure that the volume of our shipments will not drop," Mr Yan said. "The government regards it as a very important issue."

The Indian National Shipowners' Association said it had asked the EU to allow its P&I club to continue providing insurance cover for voyages from Iran. "We have written to the EU that P&I cover should continue for the Indian vessels," Anil Devli, its chief executive, told Reuters.

The Japan Ship Owners' Mutual Protection & Indemnity Association and the China Shipowners Mutual Assurance Association, which insure their country's fleets, are also reinsured through the London P&I clubs, meaning they are indirectly affected by EU sanctions.

"The question now is, will the Chinese and Japanese governments get involved and subsidise insurance or guarantee insurance?" said Mike Roderick, a partner at the international trade law firm Clyde & Co in London. "It's more difficult for Japan because of its ties to the US. But China might."

The EU ban on related finance and insurance also means that insurers affected could not cover the trade even if there is no EU element to the shipment itself. However, an exception to the embargo regulations is being discussed for P&I insurance that would open up possibilities to lift cargoes lawfully from Iran for delivery outside of Europe for non-EU members.

The EU has already looked at a clause that states: "It shall be prohibited … to provide, directly or indirectly, financing or financial assistance … insurance and reinsurance, except for third party liability insurance and environmental liability insurance."

The proposal would allow tankers owned outside the EU to continue carrying Iranian oil even if they are insured in Europe, according to Andrew Bardot, the secretary and executive officer of the International Group of P&I Clubs.

However, Reuters is reporting that diplomats in the EU are divided on the issue, quoting one as saying: "At the moment, there is no agreement on this."

The embargo follows rising political tension between the West and Iran over its nuclear ambitions. Fears over how the EU embargo will affect oil supplies have helped to drive up benchmark crude prices, with Brent about 14 per cent higher so far this year.

dblack@thenational.ae

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