Japan is considering a new law to provide sovereign guarantees for its ships to allow them to continue importing Iranian crude oil after EU sanctions come into effect in July, the Nikkei business daily said.
The European Union has already prohibited European insurance coverage on hull and machinery for Iranian crude shipments, which has significantly limited Japan's lifting of Iranian crude from April.
The European Union in March, however, extended European insurance for oil spills on Iranian oil shipments until July 1, responding to calls for exemptions by Japan and South Korea.
Industry sources have said it would be virtually impossible to keep importing Iranian crude without European insurance coverage for oil spills.
The Japan P&I club, the country's main ship insurer against pollution and personal injury claims, would been forced to slash its cover on oil spills for a tanker carrying Iranian oil to $8 million from July 1 versus $1 billion now due to the EU sanctions.
Around 90 percent of the world's tanker insurance is based in the West, so the measures threaten shipments to Iran's top Asian buyers China, India, Japan and South Korea.
The EU 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 insurance and shipping executives say a complete ban now looks likely.
Under the proposed legislation, the Japanese government and shipping companies would sign an insurance contract and the shipping firms would pay the premiums to the government, the Nikkei report said, without citing sources.
If the insurance payments topped $8 million in case of an accident, the government would pay the P&I Club up to around $1 billion, the report said.
If the European Union opts to ban insurance in July, the government would swiftly introduce the bill to the parliament, aiming to pass the legislation by early June, the Nikkei said.
But were the European Union to extend the deadline for the insurance embargo, the government could delay the submission of the bill, it added.
The United States and Europe are trying to squeeze the revenues Iran makes from its oil exports to force it to halt a nuclear programme they fear will be used to make weapons but which Tehran says is for power generation.