Iran is insuring tankers transporting its oil to buyers at a cost of millions of dollars per delivery, according to reports.
Sources told Reuters that in an effort to counter sanctions, Iran is offering big discounts in the form of free freight, insurance, finance and generous credit terms to buyers of the nation's oil.
Sanctions applied by the European Union and United States have made it increasingly difficult for ships transporting Iranian oil to find cover in the international market.
The International group of P&I clubs has had to greatly reduce its cover, due to its inability to hedge its risk with reinsurance placed in the European market.
Iran's Oil Minister, Rostam Qasemi, has said Tehran's crude exports are steady at last year's rate of 2.2 million barrels per day.
It is not known how many ships of the National Iranian Tanker Fleet are currently carrying oil, as reports suggest captains have been instructed to turn off the transponders that allow vessel movements to be tracked.
Meanwhile China's largest sea-cargo carrier has said government-backed insurance coverage for oil shipments from Iran is highly likely.
China Ocean Shipping Group said that the government will probably step in to prevent supply chain disruption as a result of the EU embargo.
"There is a big chance the government may get a state-owned insurer to underwrite the ships," Meng Qinglin, managing director at Cosco Group's tanker unit, Dalian Ocean Shipping Co, told Bloomberg yesterday. It's not clear when plans will be finalized, he added.
A number of government departments are discussing the issue, Meng said, as China, the biggest buyer of Iranian crude, seeks to ensure that EU sanctions coming into force on 1 July do not interrupt supplies.
"The government will definitely carry out measures to deal with the situation," Meng said. "Replacing Iranian oil imports wouldn't be easy."
According to the publication, Meng said that the China Shipowners Mutual Assurance Association, known as the China P&I Club, will also probably continue covering tankers carrying Iranian oil. Reuters said last week that the group may halt coverage, citing an unidentified official.
"I don't believe China P&I would make such a hasty decision," Meng told Bloomberg, adding that Dalian Ocean has not received any notice about coverage being halted.
China P&I is not part of the International Group of P&I Clubs, which has said it will cut or greatly reduce cover for tankers carrying Iranian oil on the 1 July deadline.
Source: Insurance Insight