China P&I says it will halt indemnity cover.
Singapore A major Chinese ship insurer will halt indemnity cover for tankers carrying Iranian oil from July, dealing a blow that narrows the insurance options for Tehran's main export already constricted by payment barriers caused by Western sanctions.
With Western sanctions on Tehran increasing, sources at the China P&I Club said Thursday it did not want to stand alone in the market, especially after insurers in Japan and Europe plan to either limit or ban their own coverage for tankers operating in Iran.
This is the first sign that refiners in China, Iran's top crude buyer, may struggle to obtain the shipping and insurance to keep importing from the Middle Eastern country. Iran's other top customers — India, Japan and South Korea — are running into similar problems, raising questions on how Tehran will be able to continue to export the bulk of its oil.
Crude oil prices are up nearly 14 per cent since the start of this year on concerns that Iranian supplies may be disrupted due to Western sanctions. Brent crude traded above $123 a barrel Thursday.
The China P&I Club, whose members include major Chinese shipping firms Sinotrans and COSCO Group, is the first Chinese maritime insurer to confirm it will halt business with tankers operating in Iran.
"Many ship owners want to join our club and want our club to cover this risk, but considering all these regulations from the United States and the EU, I know the China P&I club will not do that," said a Hong Kong-based official with the insurer, which provides coverage to more than 1,000 vessels.
"The China P&I club will not take the risk. We have asked our members not to go there, if they go there, they take their own risk," the official added, who wished not to be named because he was not authorised to speak to the media.
Starting in July, European insurers and reinsurers will be barred from indemnifying ships carrying Iranian crude and oil products anywhere in the world, in line with sanctions on Tehran.
Iran sells most of its 2.2 million barrels per day of oil exports in Asia, where China, India, Japan and South Korea are the four biggest buyers.
Growing pressure by the West has led some Iranian oil buyers to cut imports, but the problem over obtaining maritime insurance could altogether halt shipments to Asian customers. Chinese imports from Iran are already down more than 21 per cent in the first two months of 2012 to around 395,000 barrels per day compared to the same period last year.
Along with Russia and the Middle East, China is one of the few remaining alternatives for Asian ship owners to replace European-based coverage. It is not clear if other Chinese ship insurers also planned to follow China P&I Club and cut coverage.
"I really don't know what will happen," said a Beijing-based Chinese industry official. "We are talking about $1 billion [Dh3.67 billion] in coverage [per tanker]. No single insurance company can handle that."