Key ship insurer the China P&I Club will halt indemnity coverage for tankers carrying Iranian oil from July amid tightening Western sanctions against OPEC's second largest producer, two club officials told Reuters on Thursday.
This is the first sign that refiners in China, Iran's top crude buyer, may struggle to obtain the shipping and insurance to keep importing from the Middle Eastern country. Iran's other top customers — India, Japan and South Korea — are running into similar problems, raising questions on how Tehran will be able to continue to export the bulk of its oil.
Oil prices are up nearly 14% since the start of this year on concerns that Iranian supplies may be disrupted due to Western sanctions. Brent crude oil traded above $123 a barrel on Thursday.
The China P&I Club, whose members include major Chinese shipping firms Sinotrans and COSCO, is the first Chinese maritime insurer to confirm it will halt business with tankers operating in Iran, following similar action in Japan.
Starting in July, European insurers and reinsurers will be barred from indemnifying ships carrying Iranian crude and oil products anywhere in the world, in line with sanctions on Tehran.
Iran sells most of its 2.2 million bpd of oil exports in Asia, where China, India, Japan and South Korea are the four biggest buyers. They have either made a cut in imports or pledged to do so in the face of growing sanctions pressure by the West intended to compel the Islamic Republic to halt its disputed nuclear programme.
Asian ship owners will be further limited in their search for insurance to replace their European-based coverage as the China P&I Club was seen as one alternative. It was not clear if other Chinese ship insurers were also planning to reduce tanker coverage.
"I really don't know what will happen," said a Beijing-based Chinese industry official. "We are talking about $1 billion (per tanker). No single insurance company can handle that."
China P&I Club is not a member of the Group of International P&I Clubs, an association of customer-owned ship insurers which cover 95% of the world's tankers against pollution and personal injury claims. The Chinese insurer has applied to join the club.
Japan's main shipping insurer last month said it would only be able to provide a fraction of cover for tankers.
European insurers provide cover for the majority of the world's oil tanker fleet. Industry officials say ship owners who can still legally trade with Iran will be hard pressed to find sufficient alternative insurance, which is also likely to be less comprehensive.
