Oil tanker insurers remain wary of Iran, despite sanctions easing

Oil shipping insurers remain extremely cautious, despite slight easing of Iran sanctions.

Iran’s oil exports have plummeted since the United States and the European Union put in place sanctions at the end of 2011. Morteza Nikoubazl / Reuters

International insurers remain extremely wary of insuring ships lifting Iranian crude oil, which likely will dampen hopes of a significant increase in the country’s exports as western sanctions are eased.

Iran’s oil exports have plummeted since the United States and the European Union put in place measures at the end of 2011, as part of a United Nations sanctions regime, aimed at forcing Iran to abandon its nuclear weapons programme.

Crude oil exports dropped by 1 million barrels a day in 2012, the first full year of sanctions, and revenue plunged in the 2012/2013 fiscal year by 47 per cent to US$63 billion. The figure fell another 11 per cent to $56bn the following fiscal year, according to estimates by the US Energy Information Agency.

The UAE has been among those countries that have benefited, gaining increased market share with fast-growing oil consuming countries, such as India.

After progress in nuclear negotiations last year, Iran agreed to scale back its programme in exchange for some sanctions relief for six months through June this year. This was extended through November. The deal included some easing of the financial restrictions and easing of sanctions on petrochemical shipments.

In recent weeks following the deal’s extension, there have been some indications that activity might pick up.

The oil tanker Alexandria 1, managed out of Dubai by International Tanker Management, lifted crude in Iran and carried insurance by a European insurer, West of England.

Tony Paulson, the company’s insurance services director, confirmed it had insured the ship but would not confirm details of its destination.

This week, the chief executive of one of India’s largest refiners, Chennai Petroleum, was quoted by Bloomberg News as saying he was getting “positive responses” from insurers and that his company planned to resume importing Iranian crude after a two-year hiatus.

However, the European protection and indemnity (P&I) clubs that traditionally have covered most oil tanker insurance show little sign that they will be taking on additional Iran risk anytime soon.

Mr Paulson noted that tight restrictions were still in place and reckoned that – despite his firm insuring Alexandria 1 – there was little sign of things picking up further.

Likewise, Mike Salthouse, the deputy global director of North of England P&I, another ship insurance club, said that even though there were 20 “waiver” countries allowed to buy Iranian crude, including India, the western sanctions were mainly policed through the financial and insurance side.

US reinsurers, for example, cannot do business with Iran even after the easing of sanctions. US firms are linked in myriad ways to the oil shipping insurance markets, making it extremely difficult to write policies without their involvement.

In a circular last month to club members, Mr Salthouse pointed out that while the US has told insurers that they would be able to recover claims that might arise after the easing of sanctions, the EU had given no such assurance.

“Until there is a complete lifting of sanctions, the risks are just too great,” Mr Salthouse said.

That sentiment seems to be widespread among western insurance companies.

Alternatives, such as the Iranian P&I club called Kish, have gained little traction.

A company that was content to take coverage from such an organisation would still face the potential that a third party –a country damaged by an oil spill, for example – would not recognise the coverage would be too much of a risk for that company to bear.

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