Indian shipping companies have said they will continue to carry Iranian crude oil despite sanctions that will leave them with potential risk exposure due to limited insurance coverage.
Reuters reported Tuesday that as of July, tighter sanctions from the European Union intended to halt the transport of Iranian oil to Europe will also prevent E.U. insurers and reinsurers from providing coverage to tankers that move the crude anywhere in the world.
Since approximately 90% of such insurance is based in the West, that means greater exposure to risk even for companies that ship Iranian crude to buyers in Asia: China, India, Japan and South Korea. The sanctions are aimed at discouraging Iran from pursuing its nuclear program, which it says is peaceful but which the West believes is designed to produce weapons.
In response, Indian shipping companies have asked state insurers to at least partially fill the gap left by Western companies. Shipping Corp. of India, Great Eastern and additional firms have sought coverage up to $50 million in third-party liability coverage per tanker voyage, even though that falls considerably short of usual coverage for such trips.
Industry sources said that the companies would risk the shipments despite the lack of coverage and increased liability, which could amount to billions should there be a major spill.
However, “To the best of our knowledge, over the last 10 years, none of the Indian shipping companies carrying Iranian crude oil into India has had any major incident relating to pollution or anything,” S. Hajara, chairman of Shipping Corp., said in the report. “Since there have been no claims in 10 years, we felt if we have cover of $50 million as a commercial organization it would be worthwhile for us to continue in that business.”
India, which is the world’s fourth-largest oil importer, is also one of Iran’s largest customers, accepting an average of 10 crude shipments a month to its west coast refineries out of the 2.2 million barrels per day Iran exports.
Hajara went on to say, “Exxon Valdez happens once in decades. If you think all your risk must be covered, then you should not be in business.” He added that oil spil liability limits have exceeded $1 billion, while other incidents have exceeded $3 billion. “We have been very clear that Indian insurance companies will have a tough task, if not impossible, to get reinsurance if the sanctions really set in. We know if we ask for a huge amount of cover we will never get it.”