Insurance aspect of EU Sanctions...Asia Countries Likely to dial Back

http://www.bloomberg.com/news/2012-02-24/eu-s-iran-sanctions-curb-cover-on-crude-tankers-japan-china-insurers-say.html

Chinese and Japanese groups that insure ships against risks such as oil spills said European Union sanctions limit their ability to cover tankers hauling Iran’s crude, raising speculation governments may intervene.

The Japan Ship Owners’ Mutual Protection & Indemnity Association and the China Shipowners Mutual Assurance Association are reinsured through the London-based International Group of P&I Clubs, meaning they are indirectly affected by EU sanctions approved Jan. 23, the organizations said. Both groups say they are the largest insurers for ships in their respective countries, the two biggest importers of Iranian oil.

“The question now is, will the Chinese and Japanese governments get involved and subsidize insurance or guarantee insurance,” Mike Roderick, a partner at international trade law firm Clyde & Co. inLondon, said by phone today. “It’s more difficult for Japan because of its ties to the U.S. But China might.”

The EU ban on the purchase, transportation, financing and insurance of Iranian oil affects Asian importers because 95 percent of the world’s tankers are insured by the 13 members of the International Group, according to Andrew Bardot, the organization’s executive officer. While China said it won’t reduce imports, the EU sanctions make fewer ships available to load the cargoes from the Organization of Petroleum Exporting Countries’ second-largest producer.

Recovery or Indemnity

A provision within the Japanese club’s rules this year “excludes any recovery or indemnity where the liabilities, costs or expenses are not recoverable from the club’s reinsurers due to sanctions,” Royston Deitch, the Japan club’s London spokesman, said yesterday by e-mail. “The club benefits from the reinsurance program of the International Group of P&I Clubs, much of which is placed in London.”

The Chinese association “is in the same situation as the International Group of P&I Clubs,” according to a faxed reply to questions today from the Beijing-based group.

The Japanese club, the country’s only group of its kind, covers almost half the combined supertanker fleet of Mitsui (9104) O.S.K. Lines Ltd. and Nippon Yusen (9101) K.K., the world’s two largest owners of the vessels, according to data compiled by Bloomberg.

It insures 24 of Mitsui’s 39 sailing supertankers, known in the industry as very large crude carriers, according to data compiled by Bloomberg. Two U.K.-based clubs that are also International Group members insure the others, data compiled by Bloomberg show. The Tokyo-based owner won’t transport Iranian oil without insurance, spokeswoman Akika Hamakawa said today by e-mail.

Iranian Oil

Seven of NYK’s 29 supertankers are insured by the Japanese club and the rest by European members of the International Group, the data show. The Tokyo-based company won’t carry Iranian oil without insurance, investor relations manager Yuji Isoda said Feb. 8.

The Chinese club’s members are “the major shipping companies in China,” it said. COSCO Group and China Shipping Group each own 12 VLCCs, according to Clarkson Research Services Ltd., a unit of the world’s largest shipbroker.

New York-based Overseas Shipholding Group Inc. (OSG), Hamilton, Bermuda-based Frontline Ltd (FRO). and owners controlling more than 100 supertankers said between Feb. 9 and Feb. 11 they would stop carrying Iranian oil.

“Our P&I Club and insurance cover no longer cover these ports,” Jens Martin Jensen, chief executive officer of Frontline’s management unit, said on a conference call on Feb. 17. “It’s not a question of if we can make some money from doing it, we will not do it for that reason.”

3.55 Million Barrels

China buys about 22 percent of Iran’s oil exports, while Japan imports about 14 percent, the U.S. Department of Energy estimates. Iran produced 3.55 million barrels a day last month, about 4 percent of global output, according to Bloomberg estimates and the International Energy Agency.

China, the world’s largest energy consumer, opposes trade restrictions against Iran and said oil sanctions aren’t “constructive,” the official Xinhua News Agency reported Jan. 26, citing comments from the Ministry of Foreign Affairs. Japan is nearing a deal with the U.S. to protect Japanese banks from sanctions in return for reducing imports of oil from Iran by 20 percent, the Nikkei newspaper reported yesterday.

The EU embargo still needs to be implemented by the European Commission, the 27-nation bloc’s regulatory arm, before it becomes binding directly on companies. Pre-existing contracts are exempted until July 1.

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http://rt.com/business/news/expert-iran-asia-oil-149/

China, India, South Korea and Japan are likely to cut their oil imports from Iran in line with recent sanctions, while Iran will probably reduce production, according to Simon Powell, head of Asian Oil and Gas Research at CLSA.

“I think the Asian buyers will realize they can’t raise the wrath of the US and actually raise consumption from Iran,” he said, noting that China, Korea, Japan and India, who purchase half of Iran’s production, will buy slightly less in 2012.

EU sanctions prohibiting the purchase of Iranian oil come into force in May. Now all eyes are on Asian countries, who will decide whether they will follow suit or, on the contrary, increase purchases from Iran while negotiating a better deal for themselves.

Powell believes China will cut its imports from Iran by 50% to 250,000 barrels a day. The country is likely to turn to Africa for extra oil as gasoline demand in China is set to rise considerably in coming years. As for India and Japan, they will probably stick with Iranian oil.  

“India will struggle to find a way to pay for Iranian oil and Japan as well. They’ve raised their imports from Iran”, he said. “India doesn’t have relationships to fill the gap that might be created. But they will make the cuts.”  However, the US government has recently offered to help India get alternative supplies from Iraq and Saudi Arabia if India gives up Iranian oil, Bloomberg reports.

Iran is unlikely to make a huge discount for Asian importers, so it would probably shed a few dollars, according to experts. But it is likely to reduce its oil production. 

“We looked at Iranian production in 2011 of 3.5 million barrels per day. We think they will cut back to 2.9 million through the sanction period,” Powell explained. “It’s not a question of turning off the taps. It’s a question of scaling down.”