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Iran Oil Sanctions: New ‘Fall-Back’ Policy Will Allow Foreign Tankers To Ship Iran’s Oil Without Worrying About U.S. Sanctions — Greece, India, China, And Japan To Hop On Board

By Christopher Brown
Published on: 14:41 PST, Jun 5, 2016

Over 20 European and Asian-owned supertankers are shipping crude oil from Iran. According to data gathered by Reuters, at least 21 foreign tankers are buying cargo from Iran with the capacity to ship around 25 million barrels of oil.

The move is met with mixed feelings by many. Dynacom Tankers Manager, Odysseus Valatsas said, “Charterers are buying cargo from Iran and the rest of the world is OK with that.”

Iran had been struggling to find partners for shipping its oil lately due to disagreements on a temporary insurance fix. Now that Iran has come to a consensus, Iran is now shipping more than a third of its oil via European and Asian-owned tankers.

The International Group of P&I Clubs increased the amount covered in shipping insurance from 70 million to 100 million euros ($111.53 million) in April in addition to lifted sanctions, which spurred the influx of firms eager to ship Iran’s oil.

Ship Broker of Banchero Costa, Luigi Bruzzone said the following.

“In the first days after lifting sanctions only Iranian ships were loaded in the country, mainly due to several problems in finding insurance/reinsurance. The strong interest of the market in these trades pushed all the stakeholders to solve all the problems… and almost all P&I Clubs have granted their insurance.”

Other international shipowners still remain wary of shipping Iran’s oil. The U.S. still has restrictions placed on Tehran, which prohibit such trade in USD for American shipping firms to get involved with shipping Iran’s oil, as well as foreign firms seeking to trade with the United States.

Nevertheless, Iran is voraciously attempting to make up for lost oil trade revenue since having their 2011 and 2012 sanctions lifted as a consequence from its nuclear program.

And with new European-imposed “fall-back” clause in Iran’s new policy, U.S. re-insurers don’t have to fear any drawbacks in payments for not being allowed to deal with the United States, as the policy will reimburse it.

“The limitations of the ‘fall-back’ cover – together with other continuing restrictions, for example those relating to the U.S. dollar and use of the U.S. financial system – however have discouraged a number of shipowners, and in particular the large shipping groups, from resuming trade with Iran in which they were previously engaged,” said Andrew Bardot, CEO of the international Group of P&I Clubs.

Meanwhile, Head of investor relations, Brian Gallagher, at Euronav stated, “We are not surprised to see the increase in Iranian cargoes given the progress made by the P&I clubs and obviously the increase in Iranian production.”

Euronav is not shipping any oil for Iran yet, but if the trend continues, then the leading shipping company might just hop on board.

“We’re interested in such trade… (but) it will still take time for Iran to be fully integrated as there remain restrictions around dollar denominated transactions,” Gallagher added.

European and Asian tankers are still taking risks with their cargo and oil by trading with Iran however. Sanctions are partially lifted as the new policy is set in place, however it is possible that large accidents may not be fully covered, leaving shipping companies stranded, faced with taking a substantive loss.

Insurers claim that like Euronav, this is the reason why other top-tier oil shippers aren’t as hasty to ship Iran’s oil quite yet. Bardot put it simply.

“collision and cargo liabilities, will not be covered, and will remain with the shipowner.”

To put things into perspective, A single Very Large Crude Carrier (VLCC) supertanker costs around $90 million, while the costs of a large oil spills soar into the billion dollar range. Such risks aren’t worth taking for the top oil shipping companies.

More foreign tankers from Japan, Indian, and China — to name a few — are expecting to ship oil for Iran as the fear of missing out financially due to U.S. sanctions has essentially disappeared overnight.

Do you think that the new “fall-back” policy will undermine the American oil market?

[Photo by Anatoly Menzhiliy/Shutterstock]

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