Chinese insurer stops covering Iranian oil

A major Chinese insurer, China P&I Club, will halt coverage for tankers carrying Iranian oil from July, in the latest sign that Western sanctions may have a serious impact on the Islamic Republic’s oil industry.

The company’s decision, first reported on Thursday by the Reuters news agency, could make it difficult for oil refineries in China to keep importing from Iran.

Oil tankers typically need $1bn worth of insurance coverage. About 95 per cent of the world’s tanker fleet purchase such cover from firms in the European Union, but new sanctions which take effect in July will bar European insurers from indemnifying ships carrying Iranian oil products.

Insurers from Asian countries are also affected by the sanctions, because they rely on European reinsurers to hedge much of their risk. 

Japan’s leading insurer said last month that it would only be able to provide a fraction of the required coverage for tankers carrying Iranian oil.

‘They take their own risk’

The decision by China’s P&I Club eliminates another one of the increasingly scarce sources of insurance coverage.

“The China P&I Club will not take the risk,” a Hong Kong-based official with the firm told Reuters. “We have asked our members not to go there, [and] if they go there, they take their own risk.”

Analysts say that governments in some Asian countries may have to fill the gap.

The Indian government is reportedly considering a plan to insure tankers after its largest shipping company was forced to cancel a shipment of Iranian crude last month.

The Asian market is increasingly important for Iran as it finds itself locked out of other markets.

Major oil companies in South Africa and Greece suspended their purchases of Iranian crude earlier this week.

The Greek firm, Hellenic Petroleum, cited payment difficulties, with international financial sanctions making it almost impossible to send payment to Iranian banks.

Both countries import roughly 100,000 barrels per day from Iran, so their decisions will affect about eight per cent of Iran’s total exports. 

Iranian oil makes up a quarter of South Africa’s imports, and nearly one-third of Greece’s.

Some Asian states are cutting back, as well. Japanese imports from Iran have already fallen by about 28 per cent, according to government statistics, and refiners are planning to further cut back their imports later this month.

Even China, the largest importer of Iranian crude, has temporarily reduced imports in recent weeks over payment disputes.