Iran will find it easier to export oil after Japan's parliament, as expected, passes a bill today to provide government guarantees on insurance for tankers carrying Iranian crude.
Japan to insure Iran oil shipments
Under a European Union ban on member countries importing Iranian oil, which takes effect July 1, there is a ban on EU insurance firms covering Iran's exports.
Globally, shipping third-party liabilities for oil pollution, wreck removal and damage to port property are insured with the International Group of Protection and Indemnity Clubs, a 13-member group based in London that provides cover for 95 per cent of the world's ocean-going ships by capacity.
Under the EU sanctions the IG Clubs will no longer be able to provide this cover to ships hauling Iranian oil from 1 July.
EU and US sanctions aim to cut the oil revenues on which Iran depends to fund its nuclear programme. The West suspects Iran aims to develop atomic weapons, while Tehran says its intentions are peaceful.
The Japanese government wants to make the bill law this month to provide protection cover of up to US$7.6 billion (Dh27.9bn) per tanker carrying Iranian crude bound for Japan.
Iranian oil accounted for nearly 9 per cent of Japan's crude imports last year.
Japan has reduced the flow already to comply with US sanctions requiring buyers to make sizeable cuts to Iranian imports, but wants to avoid more drastic reductions that may drive up energy import costs and hurt the world's third-largest economy. Sources within the global insurance markets believe other Asian countries will soon follow. Japan, South Korea, China and India, together buy two thirds of Iran's oil exports.
India, the world's fourth-biggest oil importer yesterday voiced its insurance concerns at the Opec meeting in Vienna yesterday.
"We are struggling to find solutions," the Indian oil minister S Jaipal Reddy said, adding the issuing of Indian government sovereign guarantees was "in the process of examination".
South Korea will reduce imports to zero next month due to the insurance ban. Seoul, like Tokyo, has lobbied the EU to cancel or delay implementing the ban on insurers but is not considering state guarantees, Reuters reported.
Iran's top buyer, China, has yet to detail how it plans to resolve the insurance problem but the Iranian news agency Fars has reported the managing director of Iran's Kish Bilateral Insurance Institute, Mohammad Banayi, claiming a giant Chinese oil tanker company had requested his institute to give insurance coverage to its tankers.
"The Chinese company asked for our institute's assistance to receive insurance services for [its] oil tankers," Mr Banayi told Fars. "But at present our institute is not allowed to make an insurance commitment to foreign ships."
Meanwhile, the EU stressed it had no intention of halting or delaying the implementation of shipping insurance-related sanctions against Iran, and could cope with any extra loss of Iranian crude exports stemming from the measures, the EU energy commissioner Günther Oettinger said yesterday.
The support of the key suppliers Russia and Saudi Arabia, in addition to oil inventories held within Europe, means regional oil markets could cope with any loss of Iranian crude even if, as some analysts predict, the shipping sanctions make the impact of overall sanctions much larger than originally intended, he said.
"An oil ban, and to cut relations between financial institutions, is the best, pragmatic approach to give some pressure to Tehran," said Mr Oettinger.
"We have a huge storage capacity and we can lift it whenever we have to. We are sure we can organise a functioning level of security of supply in the next months and years to cope with any effects of sanctions on Iranian oil supply."
The International Energy Agency said on Tuesday Iran's crude exports fell by 1 million barrels per day (bpd) from the end of last year to 1.5 million bpd and that Tehran may need to shut in production.
China, Japan, India and South Korea have cut purchases by about a fifth from the 1.45 million bpd they were buying a year ago ahead of the imposition of the sanctions.