Insurance Worries May Cancel Japan's Iran Oil Liftings

Posted by Joseph Keefe February 23, 2016

Japan will likely refrain from loading oil at Iranian ports in March because of the impending expiry at the end of next month of special shipping insurance cover provided by the government, industry and government officials said.

The potential restriction from one of Tehran's biggest oil customers highlights Iran's difficulties in boosting exports after U.S. sanctions were lifted in January. The problem stems from confusion about whether U.S. companies can offer insurance coverage for tankers with Iranian crude.

The U.S. removed the sanctions after confirming a deal on Iran's disputed nuclear programme, including prohibitions on non-American companies selling insurance to and trading with Iranian entities.

But the Treasury Department left in place other sanctions limiting the amount of reinsurance U.S. companies can provide for Iranian ships, a crucial element in providing tanker cover.

The insurance ban was the most effective way of limiting Iranian oil exports, which were more than 3 million barrels per day (bpd) in 2011, but fell to a little more than 1 million bpd after the sanctions were imposed in 2012.

Japan has kept the oil trade with Iran going through a special government insurance programme that gives about $8 billion in coverage and the government plans to renew it with a parliamentary vote, a government source said.

But, given the lack of a timetable on the vote, shippers are erring on the side of caution and will likely hold back from any loadings next month, the government source and industry sources, who requested anonymity, said.

International insurers are trying to put together limited coverage to complement the lack of U.S. cover, but it is uncertain whether the Washington will approve the plans, officials at Japan's main insurer, the Japan P&I Club, said.

European nations have resumed loading Iranian oil despite the international P&I club only providing coverage for about 85 percent of the roughly $8 billion per ship normal liability coverage, but Japanese shippers are still holding back, said the officials.

Japan is set to load 202,000 barrels per day (bpd) of Iranian crude in February, down 8 percent from a nine-month high in January, said an industry source familiar with the matter.

Japan's Iranian crude imports last year halved from 2011 levels to about 156,000 bpd amid the sanctions.