Bloomberg News

EU’s Sanctions Against Iran Hindering Japanese, Chinese Oil-Tanker Cover

February 24, 2012

A crude oil tanker sails towards JX Nippon Oil & Energy Corp.'s Negishi refinery in Yokohama City, Kanagawa Prefecture. Photographer: Kiyoshi Ota/Bloomberg

A crude oil tanker sails towards JX Nippon Oil & Energy Corp.'s Negishi refinery in Yokohama City, Kanagawa Prefecture. Photographer: Kiyoshi Ota/Bloomberg

Chinese and Japanese groups that insure ships against risks such as oil spills said European Union sanctions limit their ability to cover tankers hauling Iran’s crude, raising speculation governments may intervene.

The Japan Ship Owners’ Mutual Protection & Indemnity Association and the China Shipowners Mutual Assurance Association are reinsured through the London-based International Group of P&I Clubs, meaning they are indirectly affected by EU sanctions approved Jan. 23, the organizations said. Both groups say they are the largest insurers for ships in their respective countries, the two biggest importers of Iranian oil.

“The question now is, will the Chinese and Japanese governments get involved and subsidize insurance or guarantee insurance,” Mike Roderick, a partner at international trade law firm Clyde & Co. in London, said by phone today. “It’s more difficult for Japan because of its ties to the U.S. But China might.”

The EU ban on the purchase, transportation, financing and insurance of Iranian oil affects Asian importers because 95 percent of the world’s tankers are insured by the 13 members of the International Group, according to Andrew Bardot, the organization’s executive officer. While China said it won’t reduce imports, the EU sanctions make fewer ships available to load the cargoes from the Organization of Petroleum Exporting Countries’ second-largest producer.

Recovery or Indemnity

A provision within the Japanese club’s rules this year “excludes any recovery or indemnity where the liabilities, costs or expenses are not recoverable from the club’s reinsurers due to sanctions,” Royston Deitch, the Japan club’s London spokesman, said yesterday by e-mail. “The club benefits from the reinsurance program of the International Group of P&I Clubs, much of which is placed in London.”

The Chinese association “is in the same situation as the International Group of P&I Clubs,” according to a faxed reply to questions today from the Beijing-based group.

The Japanese club, the country’s only group of its kind, covers almost half the combined supertanker fleet of Mitsui (9104) O.S.K. Lines Ltd. and Nippon Yusen (9101) K.K., the world’s two largest owners of the vessels, according to data compiled by Bloomberg.

It insures 24 of Mitsui’s 39 sailing supertankers, known in the industry as very large crude carriers, according to data compiled by Bloomberg. Two U.K.-based clubs that are also International Group members insure the others, data compiled by Bloomberg show. The Tokyo-based owner won’t transport Iranian oil without insurance, spokeswoman Akika Hamakawa said today by e-mail.

Iranian Oil

Seven of NYK’s 29 supertankers are insured by the Japanese club and the rest by European members of the International Group, the data show. The Tokyo-based company won’t carry Iranian oil without insurance, investor relations manager Yuji Isoda said Feb. 8.

The Chinese club’s members are “the major shipping companies in China,” it said. COSCO Group and China Shipping Group each own 12 VLCCs, according to Clarkson Research Services Ltd., a unit of the world’s largest shipbroker.

New York-based Overseas Shipholding Group Inc. (OSG), Hamilton, Bermuda-based Frontline Ltd (FRO). and owners controlling more than 100 supertankers said between Feb. 9 and Feb. 11 they would stop carrying Iranian oil.

“Our P&I Club and insurance cover no longer cover these ports,” Jens Martin Jensen, chief executive officer of Frontline’s management unit, said on a conference call on Feb. 17. “It’s not a question of if we can make some money from doing it, we will not do it for that reason.”

3.55 Million Barrels

China buys about 22 percent of Iran’s oil exports, while Japan imports about 14 percent, the U.S. Department of Energy estimates. Iran produced 3.55 million barrels a day last month, about 4 percent of global output, according to Bloomberg estimates and the International Energy Agency.

China, the world’s largest energy consumer, opposes trade restrictions against Iran and said oil sanctions aren’t “constructive,” the official Xinhua News Agency reported Jan. 26, citing comments from the Ministry of Foreign Affairs. Japan is nearing a deal with the U.S. to protect Japanese banks from sanctions in return for reducing imports of oil from Iran by 20 percent, the Nikkei newspaper reported yesterday.

The EU embargo still needs to be implemented by the European Commission, the 27-nation bloc’s regulatory arm, before it becomes binding directly on companies. Pre-existing contracts are exempted until July 1.

To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net


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