The first Indian oil tanker company to accept state-backed insurance cover to carry crude from Iran will load its first cargo this week.
Mercator is so far the only tanker company to take up the Indian government's offer of insurance, introduced after the European Union imposed a ban on EU-based insurance cover as part of its sanctions regime against Iran.
Since last month, the state-run United India Insurance Company has been offering a cover of US$50 million (Dh183.6m) per voyage against pollution and personal injury claims, also known as protection and indemnity (P&I) insurance, as well as cover for hull and machinery to protect ships against physical damage.
The amount is a fraction of the at least $1 billion coverage a very large crude carrier (VLCC) laden with about 2 million barrels of crude could expect to raise from reinsurers against any P&I claim.
Mercator has dispatched the tanker MT Omvati Prem which has now been contracted to carry 85,000 tonnes of crude oil from Iran for the Indian state refiner Mangalore Refinery and Petrochemicals (MRPL). It will sail either on Wednesday or Thursday and is scheduled to arrive in India by Saturday.
"This being a government of India cargo, it has a different sense of importance. We're not doing it just for business," said Kowshik Kuchroo, the president of shipping for Mercator.
"India is in definite need of the crude. At a short notice, we can't just snap the supply."
As well as the state-backed P&I insurance, Mercator is also insuring the ship's hull and machinery for $15m via the state-owned New India Assurance Company.
However, India's other main tanker companies traditionally involved in shipping Iran crude, Shipping Corporation of India and Great Eastern Shipping, have refused to carry Iranian cargo, calling the state-backed insurance cover inadequate.
Analysts also say the companies are afraid to irk western clients and investors by contributing to Iran's trade.
"There are many problems with the policy being offered. No, we are not going to use it as long as problems are there," said S Hajara, the chairman of Shipping Corp of India, the country's biggest ship owner.
Great Eastern Shipping Company has also refused government insurance.
"We have conveyed to MRPL that we will not be able to lift cargoes from Iran due to inadequacy of the insurance cover offered by the Indian insurer United India Insurance Company," said Gesco.
On average, there are 10 crude shipments a month from Iran to the west coast of India. But with 90 per cent of global oil tanker insurance brokered through the City of London, insurers there are blocked from offering cover for Iranian cargoes by the EU, US and UN sanctions.