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BEIJING (Reuters)—China is considering sovereign guarantees for its ships to enable the world's second-biggest oil consumer to continue importing Iranian crude after new European Union sanctions come into effect in July, the head of China's shipowners' association said.
Tough new E.U. sanctions aimed at stopping Iran's oil exports to Europe also ban E.U. insurers and reinsurers from covering tankers carrying Iranian crude anywhere in the world. Around 90% of the world's tanker insurance is based in the West, so the measures threaten shipments to Iran's top Asian buyers—China, India, Japan and South Korea.
Global crude oil prices have risen nearly 20% since October, partly on fears over supply disruptions from Iran.
"(Ship) operators are worried that if the insurance issue cannot be resolved, they will not be able to take orders for shipping Iranian oil any longer," Zhang Shouguo, secretary general of the China Shipowners' Assn., told Reuters in a rare interview with foreign media.
"We have put forward our concern, and related government departments are studying the issue," said Mr. Zhang.
Iran, OPEC's second-largest producer, exports most of its 2.2 million barrels of oil per day to Asia, and major buyers have yet to find a way around pending E.U. sanctions.
"We are paying great attention to this. The country has the need for oil and it's our responsibility to move the crude," said Mr. Zhang. "But we need a solution from the government so we can avoid such risk."
Like China, India and South Korea were also mulling sovereign guarantees for their tankers. Indian shipping firms indicated last week they would continue to transport Iranian oil even if limited insurance cover exposed them financially to a spill or accident.
Chinese insurers and shipowners would not take the risk on themselves, and government intervention was necessary, Mr. Zhang said. Major ship insurer China P&I Club told Reuters earlier this month it would not provide replacement cover for domestic tankers carrying Iranian oil.
Most of China's tanker fleet, owned by firms such as China Shipping, COSCO Group and Nanjing Tankers, were covered by European insurers, analysts said.
Most maritime insurers pool their coverage and tap into the reinsurance market when coverage exceeds $8 million. A typical supertanker—the biggest can ferry some 2 million barrels of oil—is covered for $1 billion against personal injury and pollution claims.
Several government departments were considering the industry's request, including the Ministry of Finance, the China Insurance Regulatory Commission, the Ministry of Transport and the National Development and Reform Commission (NDRC), Mr. Zhang said. He did not say when a decision might be made.
Until recently, China was Iran's top customer, taking more than 20% of its crude exports, but customs data last week showed China halved its Iranian crude imports in March compared with the same month in 2011.
On the broader shipping market, Mr. Zhang said he expected the troubled industry would return to a normal growth path in 2014. The freight market, which includes oil tankers, dry bulk ships and container vessels, has been in one of the worst downturns in recent memory due to an oversupply of vessels and slow global economic activity.
SINGAPORE (Reuters)—A major Chinese ship insurer will halt indemnity cover for tankers carrying Iranian oil from July, dealing a blow that narrows the insurance options for Tehran's main export already constricted by payment barriers caused by Western sanctions.