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Japanese insurers are expanding their maritime coverage to allow more domestic tankers to transport Iranian crude, as Tokyo looks to keep oil flowing despite tough Western sanctions, industry sources said on Wednesday.
Japan, Iran’s third biggest oil buyer, is expected to resume imports of the OPEC member’s crude in August after halting shipments this month as buyers held back to avoid any risk of running afoul of European Union sanctions, which took effect last week.
The EU oil embargo has stopped European insurers, who dominate the maritime sector, from offering cover on Iranian crude. Industry watchers say the EU step has proved to be the hardest hitting measure in the West’s arsenal of sanctions aimed at Iran.
Tokyo has slashed its purchases of Iranian crude to comply with Western sanctions, but wants to avoid more drastic reductions that could drive up energy import costs and hurt the world’s third-largest economy.
To maintain Japan’s oil trade with Iran, the Asian country’s insurers have increased their cargo and hull cover for tankers carrying Iranian crude to 39 billion yen ($491 million), up 30 percent from an initial plan unveiled in April, industry sources, who declined to be identified due to the sensitivity of the matter, said.
That will allow two supertankers, instead of one, to transport Iranian oil through the Middle East Gulf at one time and boost the country’s shipping capacity from Tehran to more than 200,000 barrels per day.
Japanese insurers are limited in the amount they can provide in cargo and hull insurance, which protects ships and their contents against physical damage, because they can no longer share the risk with the Western-dominated reinsurance market.
The expansion in hull and cargo insurance follows Tokyo’s unprecedented move last month to provide up to $7.6 billion in cover against pollution and personal injury claims, also known as protection and indemnity (P&I) insurance, for shipments.
EU sanctions prohibit European insurers and reinsurers from indemnifying tankers carrying Iranian crude oil anywhere in the world, forcing Tehran’s biggest oil customers to halt or scale back purchases.
Japan’s Iranian crude imports fell by a third in the first five months of this year to an average of around 246,000 bpd despite an increase in Japan’s overall demand, data from the country’s Ministry of Economy, Trade and Industry shows.
Tehran’s top two oil buyers, China and India, have been forced to rely on Iranian tankers to deliver Iran’s crude as their governments have not followed Tokyo. South Korea, the last of Iran’s top four customers, has stopped importing from Tehran altogether.
With oil sales having slumped to half the rate of last year and storage running out, Iran has been forced to shut off wells at its vast oilfields and reduce output to levels unseen in more than two decades.
(Editing by Randy Fabi and Clarence Fernandez)