WSJ Article: EU Sanctions Impede Iran Oil Shipments to Asia

WSJ Article: EU Sanctions Impede Iran Oil Shipments to Asia
28 Feb
10:31
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By BENOÎT FAUCON

Wall Street Journal

LONDON—A European Union oil embargo has started to impede the shipment of Iranian oil to Asia, the latest threat to Tehran’s hopes to find new outlets for its top export.

Some Asian shippers say they won’t sail to Iran, and Japan’s largest tanker-fleet owner said it is assessing whether it will have to stop Iranian oil sailings, because of difficulty maintaining insurance coverage by associations that are subject to EU laws.

Bengt Hermelin, chief executive of Singapore-based tanker company Samco Shipholding Pte., said on Tuesday that the impact of sanctions on insuring ships “will prevent owners, including Samco, from calling Iran.”

The EU last month escalated sanctions with a full embargo on Iranian oil imports and a ban on new shipping and insurance for Iranian crude cargoes.

Tighter U.S. banking sanctions also have the potential to affect insurance programs, because they are carried out in U.S. dollars.

After the EU agreed to begin its embargo on July 1, Iran declared it didn’t need to sell to Europe—its No. 1 market—because it could find buyers elsewhere. Other top buyers China and India have rejected the oil sanctions, but other Asian buyers such as Japan and South Korea are looking into ways to reduce their dependency on Iranian crude.

But the impact of the Western sanctions is rippling beyond U.S. and European borders because the International Group of P&I Clubs, which pools resources for tanker insurance clubs for 90% of global oil tonnage and is dominant is Asia, is based in London and subject to EU laws.

Frontline Ltd. and Teekay Tankers Ltd., two of the world’s largest tanker owners, have headquarters in Bermuda, a U.K. dependency that often applies U.K. laws. They both said this month they were stopping Iranian oil purchases.

Although Samco operates out of Asia, its 11 supertankers are covered by Gard P&I Ltd., a member of the International Group of P&I Clubs. Gard declined to comment on the impact of sanctions on its insurance program.

Meanwhile, shipping companies are considering following suit in a region where Tehran hopes to find clients to make up for lost European sales.

Japan’s Mitsui O.S.K. Lines, the country’s largest tanker owner, said it may be unable to ship Iranian oil if it can’t insure the cargoes.

“We will not be able to provide transport services if P&I insurance coverage is not available,” a spokeswoman for the company said. “We will observe future events and carefully determine our response.”

The Japan Ship Owners’ Mutual Protection & Indemnity Association, which covers Mitsui’s tankers, said on Monday that its coverage of Iranian oil voyages will be limited by the EU sanctions because its reinsurance program is based in London.

Shipping Corp. of India is also concerned its sailings to Iran could be affected by the sanctions’ impact on insurance, though the Indian government said is looking at solutions to circumvent the problem.

“If no cover is available to shipping lines, shipping of Iran’s crude will be affected unless alternative sources of cover are made available,” said Sunil Thapar, director of bulk carriers and tankers at the company, adding that its ships are covered by insurance clubs based in the EU.

India’s shipping secretary K. Mohandas said on Tuesday that India would consider taking steps including providing sovereign guarantees to local shipping companies to ensure Iranian oil shipments remain covered.

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