In less than two weeks, Iran's biggest oil buyers will lose access to the London-based insurance market that protects 95 percent of the world's tanker shipments against oil spills or catastrophic collisions, Reuters reported.
Barring an unexpected last-minute deal to relax European Union sanctions, Europe's Protection and Indemnity (P&I) clubs will be unable to insure vessels carrying Iranian crude from July 1, an unforeseen but ultimately critical side effect of EU sanctions to punish Iran for its nuclear program.
In an extreme scenario, exports from OPEC's second-largest supplier -- already curtailed by separate U.S. sanctions and an EU import ban -- could grind to a halt next month as overseas oil companies cannot afford to take the risk of multibillion-dollar liabilities arising from an uninsured incident.
Such an outcome seems unlikely. In Japan, which now buys about a fifth of Iran's exports, legislators are expected to approve unprecedented government guarantees to insure shipments later this month.
But no other country has announced similar arrangements, and buyers in South Korea and India say they will have to stop loading any new cargoes from July without a solution.
Despite the risks, however, oil markets appear blase: Since April, Brent crude prices have slumped more than 20 percent to trade below $100 a barrel for the first time since early 2011; in a straw poll by Reuters, none of the five analysts who provided forecasts for Iranian exports expected more than a modest dip in sales in July and the rest of the year.
For the moment, traders are betting that reduced demand resulting from Europe's debt crisis, near-record Saudi oil production and a boom in North American output are more than sufficient to offset the estimated drop of 1 million barrels per day (bpd) in Iran's exports since last year.
Group of Eight nations have also made clear they could release emergency oil reserves quickly if supplies are endangered.
In effect, market sentiment on Iran has swung from one extreme to the other. The fears earlier this year of an immediate Israeli military attack on Iran have been replaced by what some analysts warn is dangerous complacency.
More broadly, dimmer prospects for a resolution to high-level nuclear talks and growing risks of instability stemming from Syria's turmoil may be underestimated.
On average, the analysts see Iran's exports slipping by only 216,000 bpd in July, and marginally thereafter. That implies a total loss of exports at close to the 1.5 million bpd level that analysts at Barclays warned could provide "significant upside to prices", particularly with summer demand rising.
The West suspects Iran of trying to make atomic weapons, but Tehran says its nuclear program is for power generation.
However, insurance quickly become a central issue with wider implications. While U.S. sanctions have successfully convinced most Asian nations to cut Iranian purchases by a tenth or more, the lack of P&I coverage threatens to halt exports completely -- a development that not even Washington seems to want.
Major importers had lobbied the EU to relax the ban or delay the sanctions, but the EU has been resolute: "We have a clear position starting with the oil ban on the first of July," Energy Commissioner Guenther Oettinger said last week.
Ultimately, for some analysts the question is less about the immediate impact of sanctions than about the degree to which some countries may yet evade them.
Edited by: S. Isayev