India has been forced to seek its own arrangements to insure its purchases of Iranian oil, officials said, even as it reduces imports under pressure from U.S. and European Union sanctions, The Wall Street Journal reported.
Indian state-owned insurers, shipping lines and government officials met to discuss the situation in Mumbai on Wednesday. India's state-run insurance firms have agreed to offer coverage of up to $50 million for each Indian ship carrying Iranian crude. The state-run General Insurance Corp. will reinsure the cargoes. Such coverage is much lower than the up to $1 billion that European insurers would normally give per ship to cover third-party claims in the event of an oil spill or other accident.
But Indian industry executives involved in Wednesday's meeting said they had little other choice as European insurance companies have pulled out of the Iran oil trade. An EU embargo on Iranian oil imports, which took effect on July 1, also stops European firms from insuring Iranian shipments.
"Our exposure would run into billions of dollars, but since there haven't been many insurance claims in the last several years, we have taken a pragmatic view," said Sabyasachi Hajara, chairman and managing director of state-owned Shipping Corp. of India, the country's biggest shipper of crude from Iran.
India is taking other steps, including asking Iran's state-owned shipping company to deliver oil in its vessels, but it is unlikely Iran will have sufficient spare capacity, industry executives say.
The problems facing India show the effectiveness of policies aimed at squeezing Iran financially in a bid to force the country to take measures that guarantee its nuclear program isn't being used for weapons development. Tehran says the program is for peaceful purposes.
Iranian oil output tumbled to its lowest level in more than 20 years last month as U.S. and European sanctions clamped down on the Islamic Republic's export markets, a monthly report from the Organization of Petroleum Exporting Countries showed Wednesday.
U.S. and European sanctions drove Iran's oil production down by 188,500 barrels a day in June, to 2.96 million barrels a day, according to data OPEC analysts gathered from secondary sources. The last time Iran's annual average production fell below three million barrels a day was 1990. New OPEC forecasts suggest world markets will be able to cope well with lower Iranian oil supplies through 2013.
The International Energy Agency estimating lost production is costing the country $8 billion in lost revenue per quarter.
The U.S. sanctions threaten to penalize buyers of Iranian crude if they fail to adequately cut back on imports of Iranian oil. The U.S. determined that India, China and other big buyers of Iranian oil have complied.
Washington says it will reassess in six months whether countries have continued to reduce purchases.
Indian shipments from Iran fell 5.7% in the financial year ended March 31 to slightly under 350,000 barrels a day. Iran is now India's fourth-largest supplier of crude, down from No. 2 last year.
The country aims to further cut Iranian imports by 11% to about 15.5 million tons in the year to end March 2013. But officials say they need to still buy Iranian crude until they can ramp up alternative imports from nations such as Saudi Arabia and Iraq.
Indian shippers, such as Shipping Corp. of India, Great Eastern Shipping Co. and Mercator Ltd., handled a total of about six to seven ships carrying Iranian crude every month before the EU ban, said Anil Devli, head of the Indian National Shipowners Association.
For some Indian shipping companies, the new insurance coverage is too low. A spokeswoman for Great Eastern Shipping, a private company, said it had stopped transporting Iranian crude from July 1 because of insurance concerns.
Others said the move to rely more on state-owned Indian insurance companies could be risky. "I don't think anybody would like to compromise on the insurance cover," said Deepak Mahurkar, an oil and gas analyst with PricewaterhouseCoopers India. "So, I would say that companies would work overnight to ensure that covers are available from some of the other reinsurers."
An executive at an Indian private shipping company said India's attempts to insure vessels could work despite the $50 million insurance coverage.
"This figure is low but we can call it a workable solution," the executive said. "Liabilities in case of an accident in Indian or Iranian waters is also less than in U.S. waters."
The Indian shipping industry was also pushed to accept low insurance coverage because it doesn't want to see its business going to Iranian tankers, the executive said.
"The petroleum ministry wants to bring crude in Iranian vessels which will hurt business for Indian ships, so we accepted this figure," he said.