Economy

Insurance fund likely to cover refiners using Iranian crude oil

Our Bureau New Delhi | Updated on March 12, 2018 Published on March 24, 2013

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Coming to the rescue of local refineries that buy crude oil from Iran, the Government plans to set up a special fund to back domestic insurers in providing cover to these units.

These companies find it difficult to get cover from international insurers as the West has restricted European and American companies from entering into deals in Iran in almost every non-essential business, including insurance. This is targeted at Teheran’s revenue sources.

Adding to the refiners’ woes is the refusal of the country’s insurance companies to provide cover to units processing Iranian oil as they are unable to get reinsurance from European majors.

Though Indian insurance companies are not governed by the US/EU sanctions, they do depend on reinsurance from Western companies because of the high-risk nature of the business. Reinsurance makes up 80-90 per cent of the insurance cover provided.

Petroleum Secretary Vivek Rae said the Department of Financial Services is working on creating a reinsurance fund to provide cover to refineries. When set up, both insurance companies and the oil industry will contribute to the fund.

According to Rae, insurance companies have said that they cannot give insurance if there is no re-insurance cover. He, however, added that there is an understanding that under European law, reinsurance outside Europe is not hit by the sanctions. The issue is now being examined in consultation with the Ministry of External Affairs. If this be the case, then imports can continue.

On Friday, External Affairs Minister Salman Khurshid was quoted as saying that India has sought clarification from the European Union on insuring oil supplies.

Asked what size this fund will be, Rae said: “What will be the size of this fund, how much we are required to contribute, whether it is enough to cover reinsurance — these are details that insurance companies have to work out.”

Last month, some of the domestic refiners processing Iranian crude oil had told Business Line that the contracts with the Western insurers would end in the next few months. This would mean that they would have to stop processing Iranian oil because of the higher financial risk if no immediate mechanism is put in place.

Imports from Iran have fallen from 21.20 million tonnes (mt) in 2009-10, to 18.50 mt in 2010-11 and 18.11 mt in 2011-12. It is unlikely to exceed 11.5-12 mt this fiscal (2012-13) till the situation improves.

MRPL has cut its sourcing from Iran by almost 50 per cent. Importing 7 mt per annum earlier, MRPL had brought this down to 5 mt, and expects to close this fiscal at about 3.8 mt.

Essar Oil, which has been sourcing 5 mt from Iran, has cut imports by almost 15 per cent.

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Published on March 24, 2013
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