India, the third-biggest buyer of Iranian oil, will offer state-backed insurance to tankers, helping the nation's biggest sea carrier to resume cargoes from the Persian Gulf nation hit by international trade sanctions, Bloomberg reported.
Shipping Corp. of India will soon start services to Iran as Indian insurers have agreed to give as much as $100 million of cover per voyage, Chairman Sabyasachi Hajara said without specifying a timeframe.
"Prior to the sanctions, European companies provided unlimited protection against risks including oil spills and collisions," he said.
The resumption of services will help Mangalore Refinery & Petrochemicals Ltd. (MRPL), India's biggest buyer of Iranian crude, and other state processors secure supplies after European Union measures disrupted trade.
The sanctions, prompted by Iran's nuclear plans, also affect shipments to China, Japan and South Korea as 95 percent of oil tankers are insured by the 13 members of London-based International Group of P&I Clubs.
"As far as India is concerned, we are bothered about our sovereign requirements," Hajara said in a July 31 interview at the company's Mumbai headquarters. "We took a pragmatic view."
Mangalore Refinery halted purchases from Iran after the sanctions made it impossible to get ships to carry the crude, Managing Director P.P. Upadhya said last week. That prompted the company to buy more of its requirements from the spot market where prices are typically higher.
Iran was the fourth-biggest supplier of crude to the South Asian nation in the year ended in March, according to the Associated Chambers of Commerce and Industry of India. The country purchased about 18 million tons of Iranian oil, the New Delhi-based lobby group said on May 8.
"Being a sovereign entity, Shipping Corp. has to follow certain directions in the larger interest of the nation," said Chetan Kapoor, a Mumbai-based analyst with IDBI Capital Market Services Ltd. "They don't have much of an option."
The EU ban on the purchase and insurance of Iranian oil targets the nation's disputed nuclear program that the U.S. and its allies say is a cover for developing atomic weapons. Iran has said the program is for civilian energy and medical research.
In June, Japan's parliament passed a bill to provide $7.6 billion of sovereign insurance to tanker owners that carry Iranian oil. Importers in China and South Korea are also seeking alternative covers or have relied on Iran's fleet after International Group members, who follow EU law, stopped covering shipments.
Indian refiners will buy 11 percent less crude from Iran this year, junior oil minister R.P.N. Singh said in May, after U.S. Secretary of State Hillary Clinton urged the country to cut purchases. A month later, the U.S. exempted India from its financial sanctions on oil imports from the Islamic Republic.
Indian government officials including Foreign Secretary Ranjan Mathai and Oil Minister Jaipal Reddy have said the country will follow sanctions imposed only by the United Nations and isn't bound by the U.S. and EU measures against Iran.
Hajara said insurers including United India Insurance Co. and General Insurance Corp. of India are offering a lower cover for Iranian shipments compared with their European counterparts because the sanctions blocked their access to reinsurance.
"The Indian insurers are offering $50 million of hull and machinery cover and $50 million of protection and indemnity per voyage", he said.
Shipping Corp. is going ahead with the plan as its studies have shown that carriers in the Iran-India route haven't sought any claims from insurance companies in the past 10 years, he said. Still, potential liabilities may run into "billions of dollars," Hajara said.
IDBI Capital's Kapoor said the Indian government may bail out Shipping Corp. should the company face any claims stemming from accidents.
"As a sovereign entity, if ever they face any liquidity issue, they are likely to be covered by the government," he said. "I don't see the size of the cover as a worry."
Edited by: S. Isayev