London, 27 July – Earlier this month, after its insurance company refused to provide coverage for purchase of an Iranian oil cargo, due to U.S. sanctions, India’s Hindustan Petroleum Corp (HPCL), India’s third largest state-owned refiner, cancelled the purchase, according to three sources with knowledge of the matter.
Although HPCL renewed its installation insurance, which protects against any accidents at its refinery or storage sites, in early July, the sources say that its new policy will not protect against any incidents involving Iranian oil processed or stored at its refineries.
The sources, who have declined to be identified because of the sensitivity of the matter, say that 1 million barrels of Iranian crude were set to load onto the Suezmax tanker Ankaleshwar in early July, but HPCL cancelled the purchase after it was unable to sell it on to another buyer.
Following China, India is the next largest buyer of Iranian crude after China. However, without insurance coverage to protect their plants, the country’s refineries may have to cut off their imports earlier than anticipated.
After withdrawing from a 2015 accord with Iran, the United States will re-impose some sanctions against Iran starting in August, with full sanctions in place by November.
“HPCL faced problems in lifting cargo from Iran because its annual insurance policy was renewed in July after the U.S. pulled out of the nuclear deal in May,” said one of the sources.
While HPCL takes only 20,000 barrels per day (bpd) of its full demand of 316,000 bpd, other Indian refiners that take larger volumes will probably face the same problem if their annual policy must be renewed before November.
November 4th is the US’s deadline for companies to fully wind down activities with Iran or risk exclusion from the U.S. financial system. Banks, shipping firms, and insurance companies have already begun cutting ties with Iran. Lacking the financing or insurance coverage, refiners will have to halt their purchases.
Oil Minister Bijan Zanganeh said in February that Iran had hoped to sell more than 500,000 bpd of oil to India during the current fiscal year that started in April.
Senthil Kumaran, a senior analyst at consultants FGE, explained, “The problem in procuring Iranian barrels appears to be happening much before the November 4th deadline. Most of the reinsurance market is based in the U.S. so without the blessing of the U.S., Iranian oil buyers will find it almost impossible to take and process Iranian cargoes.”
In fact, Indian insurers rely on state-run General Insurance Corp for reinsurance, who depends on western re-insurers to hedge risk.