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US President Donald Trump’s decision to pull out of the Iran nuclear accord and reinstate sanctions against the regime, including its shipping industry, could spell trouble for India, which is Iran’s top oil customer after China.
India will have to re-introduce ways it adopted to deal with the situation when the Western nations imposed sanctions on the Persian Gulf nation between July 2012 and January 2014 against its controversial nuclear programme, according to shipping industry executives.
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. Iran hopes to sell 500,000 bpd of oil to India during 2018-19, its Minister of Petroleum Bijan Zangeneh said in February during a visit to India.
Trump’s decision could torpedo the plans.
India struggled to get tankers and insurance for transporting oil from Iran after the US and the European Union imposed sanctions in 2012, forcing western insurers to stop insuring ships hauling crude from Iran. The sanctions led to the emergence of new, untested insurance providers.
Following the 2012 ban, the National Iranian Tanker Company’s tankers were deployed to deliver crude to Tehran's customers in India.
Iran produces almost 4 million bpd of oil and exports 2.4 million bpd. Tehran’s exports dropped to 1 million bpd during sanctions, down from a peak of almost 3 million bpd in 2011. Iran was India’s second biggest oil supplier before economic sanctions hampered its trade relations. India was one of the few countries willing to do business with Iran during the sanctions.
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, insures around 95 per cent of the world’s tankers, placing a $1-billion limit on individual claims that involve pollution damage and wreck removal.
Two-pronged strategy
India adopted a two-pronged strategy to deal with the EU ban. It allowed state-run oil refiners to buy crude with ships and insurance arranged by Teheran on a case-to-case basis. It also asked state-run insurer United India Insurance to provide cover to Indian ships hauling Iran crude for state-run oil refiners.
United India Insurance launched a $50-million third party liability cover against pollution damage, wreck removal and personal injury claims for Indian flagged ships transporting Iranian crude. The firm also agreed to extend a separate $50-million cover for hull and machinery to protect local ships against physical damage.
Both the strategies met with very limited success mainly because the National Iranian Tanker Co didn’t have enough ships that were suitable to call at Indian ports while local tanker owners said that the United India cover was inadequate for them to travel to Iran to lift the crude.
India also 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.
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