Reuters: Japan, South Korea and global ship insurers are lobbying EU officials to revise planned sanctions against Iran to allow Europe’s insurance market to continue to cover Iranian oil shipments to Asia, government and industry sources said. By Osamu Tsukimori and Cho Mee-young
TOKYO/SEOUL, March 16 (Reuters) – Japan, South Korea and global ship insurers are lobbying EU officials to revise planned sanctions against Iran to allow Europe’s insurance market to continue to cover Iranian oil shipments to Asia, government and industry sources said.
A European Union oil embargo due to take effect in July to stop EU members from importing Iranian oil would also stop European insurers and reinsurers from indemnifying vessels carrying Iranian crude and fuel anywhere in the world.
Europe’s insurers provide cover for the majority of the world’s global oil tanker fleet, and the ban could prevent Iran’s biggest crude buyers in Asia from importing Iranian crude.
“We argue that this regulation applies too broadly as it also hits non-European companies. Not only South Korea but also Japan, China and others face the same situation,” said a South Korean government source with direct knowledge of the matter.
“We could fail to receive Iranian crude from July 1 if no solution is reached,” said the source, who declined to be identified as he was not authorized to speak to the media.
The EU embargo is aimed at hurting Iran’s oil revenue as part of a broader campaign to punish Tehran for its suspected nuclear weapons programme.
Rising international political tension between the West and Iran and uncertainty over how the EU embargo and U.S. sanctions will impact oil supply have driven up benchmark crude prices, with Brent crude up around 14 percent so far this year.
Higher oil prices mean Iran is receiving a higher price for its exports, while importers such as Japan and South Korea face a rising fuel bill.
China, India, Japan and South Korea are Iran’s top four oil customers, buying more than half of the OPEC producer’s exports of 2.6 million barrels per day.
EU foreign ministers are expected to discuss how the bloc’s Iran oil embargo will affect shipping insurance at a meeting scheduled in Brussels next Friday, a Japanese industry source said.
“It’s possible the meeting will end up being a place of tumult with various opinions being expressed. If a deal is not reached, it’s possible talks could be extended to late April,” he said.
The sanctions are already affecting oil trade, with European insurers halting tanker coverage for new contracts to ship Iranian crude oil.
“Who would take such big risks if European companies do not provide insurance?” said a South Korean shipping source. “We are internally studying solutions but I don’t think it is possible to find a solution unless the EU suggests another alternative.”
The sanctions have already forced many private oil tanker companies, such as Frontline and Maersk Tanker , to stop carrying Iranian oil on their ships.
India’s largest shipping company, Shipping Corp. of India , was forced to cancel an Iranian crude shipment last month after its European insurers refused it coverage. The firm is in talks with domestic insurers to provide replacement cover, while the Indian government is considering offering sovereign guarantees.
“If the oil is important enough, what you will find in this situation is the states stepping in to provide the reinsurance and liability insurance cover,” said a top official with a leading maritime insurer in Asia.
Although Japan, China and other Asian maritime insurers do not fall under the sanctions regime, they are still exposed due to their dependence on Europe’s reinsurance market, where they need to hedge their risk.
“Chinese tankers are exposed to similar risks as European ones as the sources of reinsurance are similar,” said an official with a state-owned Chinese shipowner.
Once the EU sanctions come into force, Japan’s P&I Club, the country’s main ship insurer, will only be able to provide coverage of a maximum of $8 million to tankers operating in Iran, down from the current $1 billion.
Any reductions would force club members who want to continue to import Iranian oil to obtain additional coverage from outside the Japan P&I Club, possibly in China, Russia or the Middle East.
“Even if Russian firms decide to accept, there’s a question about whether their balance sheets are sound enough and whether they will definitely pay in case of an accident. It’s the same for the Middle East firms,” said a Japanese industry source. (Additional reporting by Leika Kihara in Tokyo and Chen Aizhu in Beijing; Writing by Randy Fabi; Editing by Clarence Fernandez and Simon Webb)