Despite the partial lifting of U.S led sanctions, Iran’s oil exports are surging with European and Asian tankers are in the lead.
Following the lifting of western sanctions in January, more than 20 Asian and European super-tankers are shipping Iranian crude oil, thus allowing the country to ramp up its oil exports at a much faster rate than what the market and analysts had previously estimated.
As recently as April, Iran had been struggling to find partners to ship its crude stocks, but thanks to an agreement on a temporary insurance fix, more than one third of Teheran’s crude oil exports are now being handled by foreign vessels.
“Charterers are buying cargo from Iran and the rest of the world is OK with that,” said Odysseus Valatsas, chartering manager at Dynacom Tankers Management. Already Dynacom has allotted three of its supertankers to carry Iranian crude.
However, many international shipping companies are reluctant to touch Iranian crude due to continuing U.S. restrictions that prohibit any trade in dollars or involvement of U.S. banks and firms, including re-insurers.
Iran, on the other hand, is intent on making up for the lost trade following the lifting of sanctions, which were imposed in 2011 and 2012 over nuclear program.
According to live shipping data, 21 foreign tankers with a capacity to carry 25 million barrels of light and heavy oil have either loaded or are about to load crude or fuel oil in these last two weeks at Iran’s Kharg Island and Bandar Mahshahr terminals.
The resumption of international shipping of Iranian crude can be largely attributed to “P&I clubs”, which essentially are maritime mutual associations that provide “protection and indemnity” insurance to shippers.
Earlier in April, the International Group of P&I Clubs has increased the amount covered by so-called “fall-back” shipping insurance from 70 million to 100 million euros ($111.53 million). Incidentally, International Group of P&I Clubs represent the world’s top 13 ship insurers.
“In the first days after lifting sanctions only Iranian ships were loaded in the country, mainly due to several problems in finding insurance/reinsurance,” said Luigi Bruzzone of ship broker Banchero Costa.
He went on to add, “The strong interest of the market in these trades pushed all the stakeholders to solve all the problems … and almost all P&I Clubs have granted their insurance.”
“Fall-back” Cover
The “fall-back” cover is that amount which offsets the shortfall payments from U.S. reinsurers who are still not allowed to deal with Iran.
“We are not surprised to see the increase in Iranian cargoes given the progress made by the P&I clubs and obviously the increase in Iranian production. We’re interested in such trade … (but) it will still take time for Iran to be fully integrated as there remain restrictions around dollar denominated transactions,” said Brian Gallagher, head of investor relations at leading Belgian tanker owner Euronav, which itself is not involved in Iran yet.
Thus, although the partial lifting of sanctions means foreing tankers can offload Iranian oil, it however comes a cost: there is a risk to the carrier since the entire load is not fully insured in case of an accident. As a result, first tier shippers such as Frontline, Teekay, and Euronav are still shying away from carrying Teheran’s oil.
According to Andrew Bardot, an executive officer at the International Group of P&I Clubs, if the fall-back cover is exhausted during an accident, costs including “collision and cargo liabilities, will not be covered, and will remain with the ship owner”.
“The limitations of the ‘fall-back’ cover – together with other continuing restrictions, for example those relating to the U.S. dollar and use of the U.S. financial system – however have discouraged a number of shipowners, and in particular the large shipping groups, from resuming trade with Iran in which they were previously engaged,” said Bardot.
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