Japan's Main Insurer to Cut Coverage for Ships in Iran
Japan’s main shipping insurer has just reported that they will only be able to provide a fraction of insurance coverage to tankers that transport Iranian oil under the new European Union (EU) sanctions. Again, effective in July, European insurers will be banned from providing coverage to any ships carrying Iranian crude and oil products anywhere in the world based on the new sanctions on Tehran.
Japan’s P&I Club, a shipping insurance company, does not directly fall under the sanctions rule, but does depend heavily on Europe’s reinsurance market to hedge its risk. Officials from the club have stated that Japan Club rules excludes any recovery or indemnity where the liabilities, costs or expenses are not recoverable from the Club's reinsurers due to sanctions.
Down from the current $1 billion coverage, the insurer will now only be able to provide coverage valued at a maximum $8 million per tanker. Industry experts claim that if the Japan Club covers more than that, it’s possible to go bankrupt with only one accident.
Next week, the insurer is expected to publish a circular outlining its Iran policy, which will likely include the cuts to coverage. According to a Reuters report, any reductions would force club members who want to continue to import Iranian oil to obtain additional coverage from outside the Japan P&I club, possibly in China, Russia or the Middle East. This also means fewer options for non-Japanese shipping companies that need to replace their European insurance companies. China, India and Japan are Iran's three biggest crude oil customers.
Overall, Japan is now looking to reduce its reliance on the OPEC member as a result of the EU and U.S. pressure. The country may cut Iranian crude oil imports by over 20 percent as it seeks a waiver from U.S. sanctions. This move would spare its banks from major losses, but would increase its rising fuel import bill.
Photo (thumb): The foreign ministers from the EU three (France, Germany and the United Kingdom) in 2006.
Japan P&I Club is the only Asian-based member of the Group of International P&I Clubs, an association of customer-owned ship insurers which covers 95 percent of the world's tankers against pollution and personal injury claims.