Japan to Employ Sovereign Insurance for Iranian Imports

Japanese buyers of Iranian crude will have to keep using special sovereign shipping insurance to import oil for the foreseeable future, despite the lifting of sanctions against Tehran, industry and government sources said on Monday.

Shippers face uncertainty over whether they can get coverage from U.S. insurers after sanctions were lifted and it means the Japanese government may have to get parliamentary approval to extend the scheme beyond March.

Tokyo stepped in to help its oil importers after Western sanctions imposed over Tehran's disputed nuclear programme curbed the ability of private insurers to provide tanker cover.

The U.S. Treasury Department has now lifted many sanctions and non-Americans are now allowed to trade with major Iranian entities and sell insurance after Tehran was deemed to have met its nuclear commitments.

But U.S. insurers are still unable to provide coverage for Iranian shipping, said a Japanese government source and an official at Japan's main private insurer, Japan P&I Club (JPI).

"The sanctions are lifted conditionally so the (government) scheme will continue to be used for the time being," said the government source, who declined to be identified, adding shippers would not be prepared to risk using private insurance.

Only about 90 percent of the $8.1 billion per ship normal liability cover could be restored because U.S. insurers account for about 10 percent of overall coverage, the JPI official said.

The shortfall could be as much as 30 or 40 percent if insurers that are partially captalised by U.S. firms or have U.S. executives on their boards are also prohibited from doing business with Iran, the official added.

The P&I Club has sought clarity from the U.S. government over the implications of lifting sanctions, but did not know when this might come, he added.

The government insurance guarantee expires March 31, but due to uncertainty over private insurance it is likely to be extended, the sources said.

Japan is one of Iran's biggest oil buyers but its crude imports have nearly halved from 2011 levels to around 170,000 barrels per day.

Iran has asked Japanese buyers to increase term crude volumes to levels before stricter sanctions were imposed in 2012, industry sources said, but some buyers have been reluctant to do this and were looking at buying Iranian barrels on the spot market instead.

Japan could increase Iranian imports by working the 15 vessels that the sovereign scheme insures harder, but this was only likely to have a limited impact and there is also keen price competition with non-Iranian grades.

By Osamu Tsukimori