With the US sanctions threatening to block its oil trade, Iran has started providing ships as well as insurance cover to continue exporting crude oil to India, its second-biggest buyer after China, people familiar with the development said.
The US, which in May pulled out of a landmark nuclear deal and said sanctions will be re-imposed on Iran within 180 days, has threatened to cut off access to the American banking system for foreign financial institutions that trade with Iran. This has led to European re-insurers refusing to give insurance cover to firms importing Iranian oil.
To overcome this, Iran has started providing shipping insurance, the people said. Also, Iran is using its own ships to transport oil to India as not many shipping lines participated in recent tenders for transportation of Iranian oil, they said.
Earlier this month, Hindustan Petroleum Corp Ltd (HPCL) had to cancel the purchase of an Iranian oil cargo after it faced insurance issues. When HPCL at the beginning of the month got its insurance for all its installations - from refineries to pipelines and storages, renewed to protect against any accident, the re-insurer refused to cover any incidents involving Iranian oil processed or stored.
Sources said this seems to be a temporary problem and a similar situation had arisen when first round of sanctions against Iran were imposed in 2012.
At that time, the insurance cover was extended to all installations minus the proportion of Iranian oil the company processed. So if Iranian oil in a company's portfolio comprised of 10 per cent, the insurance cover would be to the extent of 90 per cent of the processing.
Sources said HPCL problem should be sorted out soon and the cancellation of one cargo happened because of new insurance company coming in on the renewal of the cover.
Other firms like Indian Oil Corp (IOC) would renew their insurance cover in 2-3 months, by when a clear situation on Iran would emerge, they said.
Iran was India's second biggest supplier of crude oil after Saudi Arabia till 2010-11 but western sanctions over its suspected nuclear programme relegated it to the seventh spot in the subsequent years. In 2013-14 and 2014-15, India bought 11 million tonnes and 10.95 million tonnes respectively from the country.