The European Union will allow some insurance on Iranian oil shipments before its full embargo starts on July 1, member states agreed on Thursday, responding to concerns from Asian importers heavily reliant on the EU for their coverage.
The decision, expected to be formally approved by EU foreign ministers on Friday, should make it easier for the likes of Japan and South Korea to import Iranian crude at least until the deadline, EU diplomats said.
Those countries lobbied the EU for an exemption on insurance restrictions after the bloc agreed an oil embargo in January as part of efforts to pressure Iran to curb nuclear work many western countries fears is aimed at making atomic bombs.
As well as stopping EU states from importing Iranian crude, the embargo banned European companies from transporting, purchasing or insuring crude and fuel originating in Iran and intended for anywhere in the world.
Thursday’s deal will allow buyers outside the EU to purchase third-party and environmental insurance on their shipments from European insurers, who cover most of the world’s tanker fleet. “Certain insurance is allowed until July 1,” an EU diplomat said.
The decision will be reviewed before an EU foreign ministers meeting on May 14, where they could, in theory, agree a further extension of the exemption, but consensus would be hard to reach because of divisions among the EU’s 27 states on the issue.
“The decision today is clear, the exemption is allowed until July 1. So unless there is another decision, there will be no more exemptions,” the diplomat said.
Under the embargo, EU governments with existing contracts to import crude from Iran can continue with them until July 1. Insurance on such purchases is allowed, new contracts are not.
Some diplomats said London – at the forefront of efforts to isolate Iran – had pushed for an open-ended exemption on insurance, fearing damage to the insurance companies that cover tankers, most of which are based in London.
But the economic argument met resistance from states such as Greece, which is heavily dependent on Iranian crude and had to give up favorable deals with Tehran under the EU embargo.
“If EU member states have decided on an oil ban, it is very difficult for them to go on insuring states who are not abiding by this oil ban. This is a bit of an illogical position,” a senior EU official said this week, explaining the arguments of countries opposed to an insurance exemption.
Rising tensions between the West and Iran and uncertainty over how the EU embargo and U.S. sanctions will impact oil supplies have driven up crude prices.
So Iran – which denies it is seeking nuclear weapons – is receiving a higher price for its exports, while importers such as Japan and South Korea face a rising fuel bill.
Some European diplomats say Europe’s economy, damaged by a two-year debt crisis, is also vulnerable to the rising prices and urged that the embargo be implemented in a way that takes economic costs into consideration.
On Friday, EU ministers are expected to formally agree on the insurance exemption as part of a wider package of regulations on how to implement the oil ban.
China, India, Japan and South Korea are Iran’s top four oil customers, buying more than half of the OPEC producer’s exports of 2.6 million barrels per day.
(Reporting by Justyna Pawlak; Editing by Sebastian Moffett and Robin Pomeroy)