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Govt allows use of Iran ships for oil imports

India has just secured a waiver from US sanctions which target Tehran's nuclear ambitions by cutting imports over 20%

Reuters  |  New Delhi 

has allowed state refiners to import Iranian oil, with Tehran arranging shipping and insurance, from July 1, keeping purchases of over 200,000 barrels per day (bpd) flowing after European sanctions hit for the cargoes, government and industry sources said.

India, one of Iran's biggest crude buyers, has just secured a waiver from US sanctions which target Tehran's nuclear ambitions by cutting over 20%.

But European sanctions that come into effect from July 1 ban insurers and reinsurers from covering shipments of Iranian oil, leaving buyers in Asia - Iran's biggest market - struggling for cover.

Around 90% of the world's tanker fleet is covered by Western-based protection and indemnity (P&I) clubs, which insure against personal injury and environmental clean-up claims.

Among other Asian buyers of oil, Japan will provide sovereign guarantees for Iranian shipments, China has asked to deliver the crude while South Korea will halt from July.

"Yes, we have allowed them to buy from on CIF (Cost, and Freight) basis," said a senior shipping ministry official.

Unlike private refiners, India's state-run companies need government permission to import on a CIF basis as federal policy requires them to favour Indian insurers and shippers by buying only on a Free on Board (FOB) basis.

aims to buy 310,000 bpd of from under contracts during the fiscal year from April to March, which includes 100,000 bpd of purchases by Essar , the only private customer.

The United States earlier this month extended exemptions from its tough, new sanctions on Iran's trade to seven more economies including but China remains vulnerable.

Indian state insurers led by General Corp (GIC) had agreed to provide $50 million of cover for the carrying crude from July but this has been delayed as the regulator has not yet given its approval.

The Shipping Ministry has said it has "no objection" to refiners buying from on a delivered basis "for 6 months with effect from July 1, 2012 or until GIC provides P&I/H&M (Hull and Machinery) cover or US, EU sanctions are lifted; whichever occurs earlier," said a source privy to the letter.

A source at a refining firm also confirmed receipt of the letter.

Mangalore Refinery and Petrochemicals (MRPL) had already switched to insuring the with Company, as its policy lapsed and local companies refused to extend the cover, wary of the sanctions.

It remains unclear, however, how much crude can actually export as it is using most of its vessels for storing crude as exports decline ahead of the new sanctions. The International Energy Agency estimates Tehran's exports have fallen 40% since the start of the year.

In addition, the Iranian tanker fleet is mostly Very Large Crude Carriers whose draught is too deep for Indian ports.

Indian state-refiners buy Iranian in Aframax and Suezmax tankers.

In July, state-run Hindustan Petroleum Corp is planning to buy a Suezmax cargo while seeks to buy five Aframax cargoes. Purchase volumes fluctuate from month to month.

IOC, the country's biggest refiner, was not planning to buy any cargo from in July, a company source said earlier.

First Published: Mon, June 25 2012. 18:07 IST