Japan asked to insure Iran oil shipments as EU sanctions bite

Oil tanker Oil tanker

April 19 (Bloomberg) -- Japan’s government may insure tankers carrying Iranian oil, joining China and India in responding to European sanctions blocking private providers.

The Japanese transport ministry held discussions with the Japan Shipowners’ Association about providing insurance, Akimitsu Ashida, chairman of the group representing the country’s shipping companies, said at a conference in Tokyo today. India is considering sovereign guarantees, and Chinese government officials also met to discuss ways to prevent sanctions from disrupting Iranian shipments.

All except 5% of the world’s tankers won’t be able to carry Iranian without losing cover against risks including collisions and oil spills because their insurers are affected by a European Union embargo that takes effect July 1. The Persian Gulf country’s output may fall more than 20% as sanctions start, the International Energy Agency estimated April 12.

“This shows that Asian countries can’t afford to stop importing from Iran,” said Mark Church, a trade lawyer at Reed Smith LLP in London. “It puts them on a collision course with the countries that are imposing sanctions.”

Japan’s ship owners will ask the government to help provide insurance if the EU doesn’t “appreciate” the Asian country’s efforts to reduce imports from Iran, said Ashida, who’s also chairman of Mitsui O.S.K. Lines Ltd., the world’s largest owner of supertankers. India’s shipping industry asked for government guarantees to replace cover from European companies, K. Mohandas, then shipping secretary, said Feb. 28.

Special Meetings

In China, Iran’s largest customer, the transport ministry and National Development Reform Commission held special meetings on the issue, and the government will make sure shipments will not drop, Yan Zhichong, general manager of tanker operator China Shipping Development Co., said March 16.

The 13 members of the International Group of P&I Clubs, based in London, cover 95 percent of the world’s tankers, according to Andrew Bardot, the group’s secretary and executive officer. Members follow EU law to access the reinsurance pool, he said in January.

Japan Ship Owners

The Japan Ship Owners’ Mutual Protection & Indemnity Association, the country’s only insurer of this type, will not pay claims involving Iranian cargoes because the EU sanctions affect its reinsurers in the International Group, according to an April 10 statement on its website. The China Shipowners Mutual Assurance Association is in the same situation because it is reinsured by the International Group, according to a faxed reply from the Beijing-based group Feb. 24.

Sanctions already cut Iran’s production by 250,000 barrels a day to 3.3 million a day, and output may fall to 2.6 million in the middle of the year, the IEA said April 12. Exports slid to 1.8 million barrels a day from 2.3 million at the end of last year, according to Citigroup Inc.

The U.S. and EU are trying to pressure Iran over its nuclear program, which they say is aimed at producing atomic weapons. The government in Tehran, facing four sets of United Nations sanctions, says the project is for civilian purposes.

“Countries with big oil demand like Japan, China and India will be hit the hardest, hence they are all considering alternatives to maintain Iranian oil supply,” said Per Mansson, managing director of shipbroker Norocean Stockholm AB. “U.S. and European sanctions will hit the oil-importing nations in the Far East very hard.”

Bloomberg News

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