With insurance companies having given an ultimatum to Indian oil entities about not extending cover to domestic refineries processing oil from Iran, they may soon be forced to stop crude imports from the Islamic nation, though supplies from that country have substantially come down since past more than a year.
Several State-owned companies like Mangalore Refinery and Petrochemicals Ltd (MRPL) as well as private refiners have to face the possibility of altogether stopping crude imports from the Persian Gulf nation, as industry sources said that insurance companies may stop insurance cover to refineries processing oil from there “any timeâ€.
Though several nations primarily India, Japan and China (which are major importers of Iranian crude oil) have severely cut down their supplies over the last two years ever since the US clamped sanctions on Iran, the crisis further deepened when on February 6 this year Washington barred Iran from receiving payments for supplying crude in the international markets in either US dollar or Euro.
This has forced India to make payments to Iran in Rupee in lieu of oil shipments from Tehran. Nations like China and Japan too have been forced to make payments in their respective currencies.
Prior to February 6, 2013, India since July 2011 had been paying in Euros to clear 55 per cent of its purchases of Iranian oil through Ankara-based Turkiye Halk Bankasi. Rest of the payments are made in rupees in Kolkata-based UCO Bank.
Now with insurance companies too threatening to remove their covers to domestic refineries processing oil from Iran, Indian refiners find themselves in dilemma.
Sources close to the development informed The Pioneer that there is pressure on Indian insurance companies from re-insurers situated in Europe and the US that even refineries that are only processing oil received from Iran, may face the danger of having their insurance covers pulled back.
MRPL, which is the country’s second biggest buyer of Iran’s oil, is already facing the prospect of receiving less 20 per cent supplies of crude by end of this fiscal. Officials privy to the information told this correspondent that MRPL had contracted supply of 5 million tonnes crude from Iran, however by March 31, 2013 it would be able to receive less than 4 million tonnes of supply.
Essar Oil, which is one of the major private companies in India which imports Iranian crude, refused to comment on the development when contacted. Though agencies reported that it would import 15 per cent less oil from Iran at about 80,000 barrels per day.
Meanwhile PTI reports further added that Western sanctions aimed at crippling Iranian finances by drying up buyers for its crude oil, had last year banned insurance cover to ships carrying Iranian oil.
Since most of the maritime insurance industry is based in Europe and insurers rely on European reinsurance markets to hedge their risk, ship owners refused to ferry Iranian oil.
That problem was overcome by Indian State-owned insurance companies providing cover to Iranian ships carrying oil from the Persian Gulf nation. But now, banks and insurers with EU or US business ties have for the first time said that even the refineries processing oil from the Persian Gulf nation will not get cover.
While crude oil imports from Iran continue for the time being, this could become a problem as no refiner can operate without an insurance cover.
What options do I have, MRPL Managing Director PP Upadhya told PTI. Insurance companies have said my refinery does not have insurance cover so I am looking at options,†he added.
Sources said the General Insurance Corp of India feels that cover and losses on processing the Iranian crude would not be payable by reinsurers due to existing sanctions. Importers are being compelled to keep the payments in escrow accounts that Iran can use only for locally sourced goods and services, in what will amount to barter arrangements.
