How Europe Globally Enforces Iran Oil Embargo

Countries like India and China might think they can get oil from Iran despite an oil embargo handed down from Brussels, but it won’t be easy. India is a good example of the how oil importers will have to find new ways around the ban if they are to buy Iranian oil.

Early this year, India’s state owned shipping firm, Shipping Corp of India, was forced to cancel an Iranian oil shipment in January because its European insurers refused to provide coverage for the vessel, anonymous industry sources were quoted saying in The Economic Times of India on Friday. Importers from other countries will face similar pressure from the multinational freight insurers who could face fines for doing business with Iranian oil.

The European Union announced sanctions in January prohibiting European insurers from covering ships that carry Iranian oil products anywhere in the world.

A tanker named Maharaja Agrasen, owned by Shipping Corp of India, was booked by refiner Indian Oil Company to load Iranian crude oil two weeks ago, but could not get the necessary insurance coverage.

“The European Mutual Protection and Indemnity Club is covering contracts concluded before January 23 on a case-by-case basis up to July 1. They have said they cannot cover contracts finalized after January 23,” a shipping source with direct knowledge of the deal told Reuters. “Shipping Corp concluded the fixtures and applied for a cover which was not extended by the European P&I Club,” the paper reported about a group of maritime insurers unable to do business with Shipping.

India is considering other insurance options like extending government backed guarantees to its shipping companies, former Shipping Secretary K Mohandas told Indian press last week.

Reuters also reported about a U.S. Department of Energy report from the Energy Information Administration saying that sanctions could tighten global oil markets. Both U.S. and European insurance companies are no longer insuring deliveries of Iranian oil.

“There is emerging evidence that some shipments of Iranian crude oil under existing contracts are being curtailed due to the unwillingness of U.S. and EU insurance providers to cover them,” according to the EIA.

India is not the only one caught uninsured. 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, so they are both indirectly affected by Europe’s sanctions. Both companies are the largest insurers for ships in China and southeast Asia.

Iran is India’s No. 2 oil supplier after Saudi Arabia. India spends around $11 billion a year on Iranian oil, which account for around 12% of India’s crude oil imports.

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