Insurance fears see few tankers ready to haul Iran crude
Monday, 20 February 2012 | 00:00
Asian buyers of Iranian crude are struggling to find vessels willing to call at ports in the Islamic Republic as shipowners fear losing insurance cover for their tankers because of European and US sanctions aimed at curbing Tehran's nuclear ambitions.
Although the EU ban on the import and transportation of Iranian crude does not directly affect Iran's Asian customers, a provision in the sanctions legislation agreed January 23 is having an impact far beyond European shores. "It shall be prohibited to provide, directly or indirectly, financing or financial assistance, including financial derivatives, as well as insurance and reinsurance, related to the import, purchase, or transport of Iranian crude oil and petroleum products," the legislation says.
The EU ban on the import and transportation of Iranian crude does not come into effect until July 1, which gives companies with existing contracts several months to phase them out and find alternative supplies.
But chartering and shipowning sources say that tanker operators with protection and indemnity (P&I) insurance cover from mutual clubs based in Europe are not accepting crude cargoes loading from Iran, despite being offered a premium to standard rates.
P&I Clubs provide insurance cover for broad, indeterminate risks such as third-party liabilities, which include a carrier's liability to the owner of a cargo for damage to the cargo, the liability of a ship after a collision, environmental pollution and war risk insurance.
Shipowners and operators such as Nova Tankers, Maersk Tankers, Frontline and OSG, all of which have large fleets, are already avoiding Iran.
An alternative for Asian tanker charterers is to look for vessels with insurance cover offered by non-EU regulated groups like Japan P&I Club, which is part of the Japan Ship Owners' Mutual Protection & Indemnity Association, sources say.
In fact, the Japan P&I Club has already seen an increase in inquiries from shipowners for insurance cover, according to one of its officials.
"The current situation is the same and it has not changed. Vessels with Japan P&I club cover can still go and lift Iranian cargoes," the official says. "Basically we are not bound by the EU regulation. We have our reinsurance arrangement done independently."
Nevertheless, this source admits, vessels with cover from Japan P&I Club could still face partial exposure to the EU sanctions because of pooling arrangements for reinsurance cover between the various P&I clubs.
Japanese refiners appear to have had no major problems lifting crude from Iran so far as most of them have time-chartered fleets with cover provided by Japan P&I Club for some vessels and by EU-based P&I clubs for others.
But this mixed cover means that scheduling becomes increasingly complicated.
"The current P&I issue has upset the positioning and scheduling of our ships. We have to specifically send those vessels with Japan P&I Club cover to fetch our Iran-loading cargoes," a Japanese chartering source says.
Indicative of the level of confusion surrounding the implications of the EU sanctions for the shipping sector are the various statements being published by tanker organizations.
The International Group, an association of 13 member clubs that provide liability cover for close to 90% of the world's shipping tonnage, last week released a list of Frequently Asked Questions on the impact of the sanctions on insurance and reinsurance cover arrangements.
The FAQs state that the P&I cover would be valid for lifting only those cargoes for which contracts were concluded before January 23, 2012. It further says it is reasonable to conclude that even "ancillary contracts" such as charter party agreements could be valid if they were concluded prior to January 23.
Despite such advice, however, many shipowners say their inquiries about cover have drawn ambiguous responses from P&I clubs and some say that insurance cover for voyages to Iran is simply not available, regardless of whether the cargo concerned is being lifted under a contract agreed prior to January 23.
"The Japan P&I Club and some UK P&I clubs have not denied insurance cover for Iranian trade so far. We are awaiting a final decision regarding the carriage of the Iran origin and loading cargoes," says a source from a company with a big fleet of VLCC tankers.
A source with a South Korean shipowner says his company is still trying to decide whether to send vessels to Iran to load crude and is waiting for a clear response from its P&I club on the provision of cover.
"Most of the owners are not calling at Iranian ports at the moment. As far as I know, the insurance cover is not available for that particular voyage," says another source with a South Korean shipowner, although he adds that "Indian and Chinese owners have no issues" when it comes to loading Iranian crude. "The Chinese lift a lot of Iranian crude and it's a big volume. So the Chinese owners will still go to Iran. If the P&I clubs don't [offer them] cover, the [Chinese] government may give them a guarantee," he says.
Interestingly, a source with Chinese-owned Nanjing tankers says that the company's Chinese-flagged vessels can still load from Iran but that those flagged to Singapore are restricted from calling at Iranian ports.
Big Chinese crude lifters such as Unipec have Contract of Affreightment deals with Chinese shipowners to lift cargoes from the Persian Gulf, including ports in Iran. Under a COA arrangement, a shipowner agrees to move a specified quantity of oil at a specified rate between designated loading and discharge ports over a given period of time.
But Chinese state-owned trader Zhuhai Zhenrong -- on which the US has slapped sanctions for allegedly supplying Tehran with refined products -- is often seen hiring vessels from the spot market to load from Iran.
India is another big Asian buyer of Iranian crude, with imports of around 300,000 b/d or 15 million mt/year from the Islamic republic, although some Indian refiners have struggled to find vessels on the spot market willing to lift from Iran.
State-owned refiner HPCL, one of the biggest Indian buyers of Iranian crude and which plans to renew its annual contract with the National Iranian Oil Company, has a COA deal with the state-owned Shipping Corporation of India to ferry Iranian crude.
"We are still sending our ships to Iran. We are getting P&I cover on a vessel-by-vessel basis. We have a few COA [deals] with our customers, which we need to fulfill," SCI chairman and managing director S. Hajara told Platts by telephone from Mumbai.
"Also, the Indian government has said that the country will continue to import Iranian crude," he said, adding: "On the EU regulations, we will see when it comes to July 1."
But Indian shipping sources are less than sanguine about future chartering options.
One VLCC broker points out that a note sent out by one P&I club "strongly highlights the dangers of having any Iran linkages on the entire fleet profile of an owner."
"Apparently it will be almost impossible for any owner with a decent fleet to touch Iran, considering that one trade can bring their entire business into a legal gambit," he says.
This broker adds that charterers worldwide tend to prefer the wording of P&I cover provided by first-class European insurers.
"So whatever little premium one may achieve by calling [to] Iran with regional P&I club cover may not be a very far-sighted decision. The risks are much broader today and the implications even more complicated," he says.
Could shipowners circumvent sanctions and their implications for insurance cover by loading Iranian cargoes from international waters or from non-Iranian-owned terminals? No, say shipping sources flatly. Since the cargo grade has to be notified on the bill of lading, shipowners will find it nearly impossible to keep away from the sanctions radar.
However, they say, one way to keep the supply of Iranian crude flowing would be to have ships owned by the National Iranian Tanker Company to deliver cargoes directly to customers.
This would suit Indian buyers in particular, one shipping source says, pointing out that "the Chinese are capable of underwriting their own vessels, if they have not done so already."
He suggests that Indian buyers may "try to get oil delivered on a C&F basis," which does not include insurance cover and "which means they get cheaper oil on cheaper tonnages."
NITC, one of the world's biggest crude tanker companies, has a fleet that includes 25 VLCCs, nine Suezmaxes and five Aframaxes.
KEY FACTS AND STATS
* Iran exports up to 2.6 million b/d of crude, a volume which requires about 39 VLCCs or 78 Suezmaxes a month.
A VLCC can hold up to 2 million barrels of crude and a Suezmax about half that volume.
China imported 29.76 million mt of crude from Iran, its third-biggest supplier after Saudi Arabia and Angola, last year.
The country's top three buyers of Iranian crude are Unipec, which currently lifts around 280,000 b/d, Zhuhai Zhenrong, which has signed an agreement to buy 260,000 b/d, and ChinaOil, which is reported to be lifting Iranian crude largely on a spot basis.
Japan imported 313,000 b/d of crude from Iran, its fourth-biggest crude supplier, last year.
South Korea imported 82.59 million barrels--an average 225,000 b/d--of Iranian crude last year, up from 72.50 million barrels in 2010.