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E.U. diplomats discuss Iran oil insurance exemption


BRUSSELS (Reuters)—European Union diplomats are debating whether to exempt some insurers from a ban on dealing with Iranian oil shipments after Asian oil importers lobbied for exceptions to ensure oil deliveries, government and industry sources said on Friday.

Diplomats in the E.U. are divided on the issue before E.U. foreign ministers meet on March 23, said one E.U. diplomat. "At the moment, there is no agreement on this."

The wrangling shows the difficulty of achieving consensus on how to isolate Iran over its suspected nuclear weapons program. Tehran denies Western charges, saying its nuclear program is for peaceful purposes such as power generation.

The E.U. agreed to an oil embargo on Jan. 20 to stop members from importing Iranian oil from July. The embargo also specified a ban on E.U. insurers and reinsurers from indemnifying vessels carrying Iranian crude and fuel anywhere in the world.

Europe's insurers cover 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," 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," he said.

After the January agreement, E.U. talks on the implementation of the ban led at first to a clause excluding certain types of insurance, according to a discussion document seen by Reuters.

The document, dated Feb. 20, said: "It shall be provide, directly or indirectly, financing or financial assistance, including financial derivatives, as well as insurance and re-insurance, except for third-party liability insurance and environmental liability insurance."

That exemption might have made it easier for shippers to meet Asian importers' national laws requiring insurance.

But it is unclear whether such an exemption will be maintained. The exemption clause had been deleted from the discussion paper on Thursday, said the E.U. diplomat, but would be up for discussion again on Monday.

The presidency of the bloc—held by Denmark for the first six months of 2012—wants an agreement on implementing the regulations before next week's meeting, said the diplomat.

Rising international political tension between the West and Iran and uncertainty over how the E.U. embargo and U.S. sanctions will impact oil supplies have driven up benchmark crude prices, with Brent crude up around 14% 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.

"It's possible (Friday's) 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," a Japanese industry source said.

The sanctions are 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 E.U. suggests another alternative."

The sanctions have 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, they are 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 E.U. 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 $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.

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