Iran has sought “permanent authorisation” from India for its two local insurance companies to enable Iranian ships with Iranian insurance cover to call at Indian ports to help maintain oil supplies from the Persian Gulf nation when new sanctions imposed by the US take effect in November.

The proposal was put forth by M Sarmadi, Managing Director at the India office of Iran’s state-run National Iranian Oil Company, during a meeting with the top officials of the Shipping Ministry on May 28, according to a document reviewed by BusinessLine .

India struggled to get tankers and insurance for transporting oil from Iran after the US and the European Union imposed sanctions between July 2012 and January 2014 on the Islamic Republic , forcing western insurers to halt insuring ships hauling crude from Iran. Following the sanctions, London-based International Group of Protection and Indemnity Clubs (IG Clubs) stopped providing third party liability cover to ships hauling Iranian crude.

The IG Clubs, a 13-member group, insure around 95 per cent of the world’s tankers, placing a $1-billion limit on individual claims that involve pollution damage and wreck removal.

The western sanctions targeting Iran’s disputed nuclear program meant insurers based in Europe — who account for the majority of cover for the tanker market — cannot insure Iranian oil and other shipments, leading to the emergence of new, untested insurance providers.

Consequently, the National Iranian Tanker Company’s tankers were deployed to deliver crude to Tehran’s customers in India while exports of non-oil commodities and industrial goods used vessels of Iran’s Hafiz Darya Shipping Lines and Safiran Payam Darya Shipping Lines.

To facilitate this, India approved two Iranian ship underwriters — Kish P&I Club and QITA P&I Club — to provide insurance for container, tanker and bulk vessels calling at Indian ports. Such approvals were initially given on a quarterly basis which was later granted for a six-month period.

It is not clear whether India would insist on a bank guarantee from Tehran through an Indian bank to cover any potential liability in the event of maritime accidents in Indian waters as a pre-condition for granting permanent authorisation to the Iranian P&I Clubs. India had sought such a bank guarantee for ₹2,300 crore during the earlier round of sanctions.

India, the world’s third biggest oil buyer, imported 4.46 million barrels per day (bpd) of oil in the year to March 2018. Of this, 458,000 bpd of oil was purchased from Iran, India’s third biggest supplier after Iraq and Saudi Arabia.

During the fiscal year that began in April, state-run refiners were weighing plans to raise Iranian oil imports on the back of freight discounts offered by Iran that increase as more barrels are purchased. Indian crude buyers will have to depend on Iranian tankers as local tanker owners would be reluctant to take non-IG Clubs backed insurance to haul crude from sanctions-hit Iran because of retribution from European and American banks that have lend them money in dollars to buy ships.

Most loans to buy vessels require insurance against risks, including spills and collisions, and banks normally only accept cover provided by members of the IG Clubs, according to an executive at a London-based shipping and asset-finance law firm.

“If the insurances are not in a form that’s acceptable to the bank, that’s an immediate event of default and the bank would have the right to foreclose,” the executive added.

“Insurance can be tackled, but the main problem is foreign lenders and bankers, especially from America, who have a strict view on sanctions. That is the main hurdle we have to cross,” said an executive with a Mumbai-based private shipping company.

“A new mechanism can be worked out where payments are not in dollars and then people will start looking at it,” he added.

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