Japanese shipping companies will sign new insurance contracts with the government by mid-July to compensate them for the expected loss of protection and indemnity insurance cover as EU sanctions against Iran come into effect as scheduled on July 1, sources familiar with the matter said Tuesday.
The Japanese sippers will sign the contracts with Minister of Land, Infrastructure, Transport and Tourism Yuichiro Hata after they signed supplementary contracts with the Japan P&I Club to make up their expected loss of the insurance cover after June 30, sources said.
The contracts will be signed as EU sanctions against Iran - including a ban on oil imports and a ban on the provision of insurance for tankers shipping Iranian oil - come into force, the sources said.
A new Japanese law - which comes into effect Wednesday - compensates Japanese buyers of Iranian oil for the expected loss of protection and indemnity cover as a result of the EU sanctions, government sources said.
The government is now working on a notification to have the new insurance contracts to be valid from July 1, the government sources said.
Until the end of June, Japanese shipowners can obtain up to $7.6 billion in cover for eventualities ranging from an oil spill to wreck removals and fishery claims, but this could drop to $8 million, the maximum the Japan P&I Club will be able to guarantee once the EU sanctions take effect.
Although the EU's imminent embargo on the import of Iranian oil does not directly affect Japan, there will be an impact from a ban on insurance cover for ships carrying Iranian crude because most of the world's P&I insurance is provided by EU-based insurers.
Tokyo had been trying to persuade Brussels to allow cover for non-EU countries to continue beyond June 30, but did not succeed.
Despite the new legislation to make up for any loss of P&I cover, Japanese loadings of Iranian crude could see a drop in July from levels seen in recent months, sources told Platts last week.
Most Japanese buyers of Iranian oil have submitted their nominations for July loadings totaling 100,000-200,000 b/d, roughly similar to purchases in recent months, despite the uncertainty over shipping insurance.
But most Japanese buyers have deferred nominations for loadings to towards late July to ensure they have enough time to exercise their right to invoke force majeure if the EU does not agree to allow insurance cover to continue once the sanctions are in force.
The National Iranian Oil Company has already agreed to additional force majeure clauses that Japanese buyers will be able to invoke if sanctions prevent or limit execution of contracts. This would require notice of 30 days from the Japanese companies.
So far, sources said Tuesday, no Japanese refiners have arranged loadings of Iranian crude by mid-July.
But the likely loading congestion in the latter part of July could limit how much oil the Japanese can lift next month. This is because the insurance provision for cargo and hull damage from a group of non-life insurers is capped at Yen 30 billion ($375 million) for the 12 months from April, which means that they cannot take much more than 200,000 b/d in total.
Source: Platts