India has joined Japan in offering government-backedinsurance for ships carrying Iranian crude in order to bypass Europeansanctions that have nearly halved Iranian oil exports to key markets.
The first Indian ship to carry oil from Iran with Indian insurance is scheduledto load up in Iran on Wednesday, a shipping company executive said. This is abreakthrough for the Indian government, which has scrambled to maintain vitalIranian oil imports after European sanctions blocked third-party insurance inJuly.
The MT Omvati Prem — a tanker contracted to carry 85,000 metric tons of crudeoil from Iran for Indian state refiner Mangalore Refinery and PetrochemicalsLtd. — is scheduled to arrive in India by Aug. 25, said Kowshik Kuchroo,president of shipping for Mercator Ltd., an Indian shipping company.
"This being a government of India cargo, it has a different sense ofimportance. We're not doing it just for business," Kuchroo said Monday."India is in definite need of the crude. At a short notice, we can't justsnap the supply."
Mercator is insuring the ship with $50 million in hull and machinery insurance,which covers physical damage to the ship, from state-owned New India AssuranceCo. It's insuring the vessel with another $50 million in protection andindemnity insurance, which covers a broad range of liabilities, includingenvironmental pollution and cargo damage, from government-backed United IndiaInsurance.
That is a far cry from the $1 billion in coverage Indian companies likeMercator got from European insurers, which used to underwrite most maritimecoverage. European Union sanctions that prohibit EU companies from offeringinsurance on tankers carrying Iranian crude took effect July 1, part of theU.S.-led effort to tighten sanctions on Iran to cut off funds for its nuclearprogram.
Imports of Iranian oil by major consumers plunged to 1 million barrels a day inJuly from 1.74 million barrels a day in June, according to an Aug. 10 reportfrom the International Energy Agency.
Mercator aside, most Indian shippers don't like the terms of the insurancecoverage and have declined to send tankers to Iran.
Sabyasachi Hajara, chairman and managing director of Shipping Corp. of India,said the current package was "inadequate."
"The coverage modalities are yet to be worked out," he said. Oncemutually acceptable terms can be reached, he said his company would be happy tohaul Iranian oil. No shipments are now scheduled, he said.
China, India, Japan and South Korea are among Iran's most important oil exportmarkets. The Obama administration exempted all four countries from U.S.sanctions after they significantly reduced their imports of Iranian oil.
Japan was the first country to devise a workaround to the EU sanctions,offering its shippers a robust $7.6 billion per tanker in government-backedinsurance for oil cargo from Iran. Japan's Parliament passed the emergencymeasure in late June to avoid a disruption to critical oil supplies due toactions against Iran.
Iran has offered to deliver crude on its own ships to China, South Korea andIndia. But Iran's fleet size is limited and some companies are skeptical aboutthe viability of Iranian insurance cover, analysts say.
"The complications in securing alternative arrangements to continueimporting Iranian oil in view of tanker insurance problems are prolongingimport problems for some countries, who are looking toward alternativesuppliers," said Tom Grieder, Asia-Pacific energy analyst for IHS WorldMarkets Energy. "While Japan has provided state-backed insurance cover,Indian insurance cover is not particularly large and refiners still face importrisks. More broadly, there continue to be concerns about the viability andvalidity of Iranian insurance cover, which has been offered to China and SouthKorea."
South Korea stopped importing Iranian crude in July, when the insurancesanctions hit. Two refiners told The Associated Press on Monday that they werein talks with the South Korean and Iranian governments about using Iranian tankersunder Iranian insurance cover to import oil.
"Iran first made the offer," said Eom Ik-hoon, spokesman for SouthKorea's largest refiner, SK Energy, which imported 10 percent of its crude fromIran before the sanctions hit. "We are discussing details with the SouthKorean government, but we do not know when imports will be resumed."
Hyundai Oil Bank Co.'s spokesman Koh In-soo said the company was also reviewingusing Iranian ships and insurance, but denied earlier news reports that thecrude imports may be resumed as early as September.