India and Iran have put systems in place to continue their trade in crude oil, with India winning a temporary waiver from the United States after Washington re-imposed sanctions on the Persian Gulf nation over its disputed nuclear programme.
The sanctions inhibit global fleet owners and insurers from dealing with Iran crude shipments for fear of incurring the wrath of the US. Lack of ship and cargo insurance will hurt imports from Iran, India’s third-biggest supplier after Saudi Arabia and Iraq.
To bypass this hurdle, India’s Shipping Ministry has amended a key shipping rule mandated by the government for crude purchases by state-run oil refiners.
The Ministry has also granted permission till February 2020 for two Iranian ship underwriters – Kish P&I Club and QITA P&I Club – to provide cover to Iran tankers bringing crude to the country with a liability limit equivalent to the one extended by a London-based global insurance group. This is expected to help continue oil supplies from the sanctions-hit country.
India will pay Iran for the crude purchases in rupees, which that country will use to import goods from India.
“Iranian oil is good for India. It is coming on a short haul, they are giving concessions on rates and we are getting good value from that,” said a government official.
State-run oil refiners, including IOCL, MRPL, BPCL and HPCL, had signed annual term contracts with Iran on a free-on-board (FOB) basis before the US decided in May this year to re-impose sanctions after walking out of a nuclear deal signed by Western nations with Iran in 2016. The refiners have lifted more than half of these contracted quantities.
“Now, with the new sanctions taking effect from November 4, the remaining quantities contracted with Iran on FOB basis need to be converted into cost, insurance and freight (CIF) imports. For that, permission has been granted by the Shipping Ministry,” said a Shipping Ministry official.
Under FOB deals, the buyer has to make the shipping arrangement, but in CIF contracts, it is the seller who makes the shipping arrangement. A government policy mandates purchase of all government-owned/controlled cargo on FOB basis, in which the Indian buyer will have to finalise the shipping arrangements – a policy designed to provide cargo support to Indian-flag ships.
State-run oil refiners need to take a no-objection certificate (NOC) from the Shipping Ministry for any deviation from this policy. It is mandatory for foreign ships entering Indian ports to hold a valid third-party liability cover against maritime claims such as oil pollution, wreck removal, and damage to port property, which are commonly referred to as protection and indemnity (P&I).
Such third-party liability risks have to be insured with the London-based International Group of Protection and Indemnity Clubs (IG Clubs), or an insurance company authorised by the government, according to the Merchant Shipping (Regulation of Entry of Ships into Ports, Anchorages and Offshore Facilities) Rules 2012.