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Will Indian tankers lose Iranian cargo? - 2012-06-25

If Indian ships cannot get insurance to carry oil from Iran, let Iranian ships bring the oil to India.

This appears to be the Petroleum Ministry’s stand on shipment of crude oil from Iran if Europe-based insurers cut off their cover to Indian vessels carrying Iranian cargo from July 1. On Friday, the Petroleum Secretary, Mr G .C. Chaturvedi, said he has sought the Shipping Ministry’s permission to allow Iranian ships to bring crude oil. This means seeking permission to import oil on c.i.f. (cost, insurance and freight) basis. In such imports the supplier of the cargo has to bear the cost of insurance and freight. In other words, it will be the responsibility of Iran to deliver the cargo to India.

Iran has its own shipping company — National Iranian Tanker Company — and its vessels have been bringing oil to India. Public sector oil companies such as Mangalore Refinery and Petrochemicals Ltd (MRPL), Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL) and IndianOil Corporation (IOC) require exemption from the Shipping Ministry to import oil on c.i.f basis.

This is because it is mandatory for oil companies to follow the Government policy of imports on f.o.b. (free on board) basis. The idea behind the policy is to provide cargo preference to Indian shipping companies. In the case of MRPL, the largest Indian importer of Iranian crude oil, Transchart, the chartering wing of the Shipping Ministry, makes the shipping arrangements, while IOC, HPCL and BPCL do their own chartering.

The international protection and indemnity (P&I) clubs based in Europe decided to deny insurance cover to ships carrying Iranian cargo, following the European Union’s sanctions against Iran over its nuclear programme. Nearly 90 per net of the world’s ocean-going fleet are covered by 13 international P&I clubs. The sanctions are expected to come into force on July 1. Iranian tankers are insured by Iran itself. So, importing oil on c.i.f. basis by Iranian ships sounds a simple and easy solution to import of crude oil from Iran, over which local ship owners and oil importers have been losing sleep over the last six months.

Yes, it is a simple solution theoretically, but not so practical. Moreover, it is not good strategy for the country’s shipping sector. First, Iran cannot make its entire tanker fleet available to India even though the country is a major buyer of its oil and the Islamic nation is compelled to export as much oil as possible. Secondly, all Iranian tankers are not suitable to call at Indian ports because of depth constraints. A large part of the Indian oil cargo is carried by Aframax and Suezmax tankers. This is because all ports in India cannot berth very large crude carriers (VLCCs) and a major part of Iran’s foreign-going tonnage consists of VLCCs. MRPL brings it by Aframax tankers. Essar Oil, a private refiner, is the only one who imports crude from Iran by VLCCs. Also, the Iranian shipping company will not be in a position to charter other ships because of international sanctions. Second, for domestic shipping lines, this would be a negative in terms of cargo loss, particularly at a time when the shipping sector itself is reeling under a weak freight market. The Great Eastern Shipping Company has a contract from MRPL to carry around five million tonnes from Iran this fiscal, which it stands to lose if MRPL goes in for c.i.f. import.

“This is not a good thing for Indian shipping. If oil companies go for c.i.f. purchases, our vessels will lose the cargo,” said Mr S. Hajara, President, Indian National Ship-owners Association. “We have been asking for government support either in terms of insurance cover by the public sector insurance companies or sovereign guarantee on Iran voyages,” said Mr Hajara, who is also the Chairman of the Shipping Corporation of India. “If Japan and China can support their shipping fleet, why India cannot do so? It is strategically important to own a tanker fleet for a country which is major importer of oil,” he said. Last week Japan’s Parliament passed a Bill to provide government guarantee on insurance for oil cargoes from Iran. According to reports, the Bill, which will become law from June 27, allows the Japanese Government to provide cover up to $7.6 billion for each of the tankers carrying Iranian crude oil to Japan. China, another major importer of Iranian crude oil, has also decided to support its fleet. India, which used to import around 12 per cent of its crude oil needs from Iran, has cut the import to below 9 per cent after the US and EU sanctions. But India has made it clear that it will continue to import from Iran. Indian ship owners have been asking for sovereign guarantee for ships’ Iranian voyages. They have also approached public sector insurance companies for a limited cover of $50 million for each tanker. They have been waiting for a positive response either from the government or from the insurers for the past weeks. What they have got so far was more bad news. Last week they were told by the Indian insurers that their ships will also lose hull and machinery cover if they pick up Iranian cargo. This is because the General Insurance Corporation of India, which provides reinsurance to Indian insurers, may lose its own reinsurance with the European insurers. And finally, the oil companies are planning to bring in Iranian oil by Iranian vessels.

Source : Hindu Business Line