Iran extends shipping, insurance cover for oil exports to India
27 July 2018
Iran is reported to have started providing ships as well as insurance cover to its oil exports to India, its second-largest customer after China, as the US sanctions threaten to block its oil trade.
The US, which in May pulled out of the nuclear deal and announced the re-imposition of sanctions on Iran, and threatened to exclude foreign financial institutions that trade with Iran from the American banking system. Western, mostly European, re-insurers have since refused to give insurance cover to firms importing Iranian oil.
To overcome this, Iran has started providing both shipping and insurance for its oil export, reports said.
Iran is using its own ships to transport oil to India as shipping lines shied away from its recent tenders for transportation of oil.
Also, Hindustan Petroleum Corp Ltd (HPCL) had to cancel the purchase of an Iranian oil cargo, earlier this month, as insurance firms refused to provide cover.
It may be noted that the insurance companies refused to renew insure cover to HPCL’s installations, including refineries, pipelines and storages, to protect against any accident, as the re-insurer refused to cover anything involving Iranian oil.
While this may be a temporary measure to force compliance to US embargo, insurance companies will lose money in the long run.
During the earlier sanctions, the insurance cover was extended to all installations minus the proportion of Iranian oil the company processed. So if Iranian oil in a company's portfolio comprised of 10 per cent, the insurance cover would be to the extent of 90 per cent of the processing.
Iran was India's second biggest supplier of crude oil after Saudi Arabia till 2010-11 but western sanctions over its suspected nuclear programme relegated it to the seventh spot in the subsequent years.
Sourcing from Iran increased in the run-up to the new sanctions, making Iran, India's second-biggest supplier behind Iraq in the first three months of current fiscal, supplying 8.93 million tonnes of oil.
The Trump administration is putting pressure on India, China, and other buyers to end imports of Iranian oil by the 4 November deadline as it looks to choke the Gulf state's economic lifeline.
The US may block the payment channels by November and India will have to look at alternate means to pay Iran for the oil it buys.
India currently pays Iran in euros using European banking channels.