Exclusive: Insurance to stop India shippers handling Iran oil in July: sources

NEW DELHI Mon Jun 11, 2012 10:01am EDT

1 of 2. A worker fills a car with petrol as he gestures towards the fuel barometer for the passenger to check, at a fuel station in Kolkata September 15, 2011.

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NEW DELHI (Reuters) - Indian state-owned refiners will halt planned oil imports of 173,000 barrels per day from Iran when European sanctions take effect in July, unless the government permits them to use insurance and freight arranged by Tehran, industry sources said.

India is the world's fourth-largest oil importer and second biggest customer of the OPEC member nation, but domestic shippers have refused to transport the oil because of a lack of cover, the sources said.

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

But Indian shipping firms say they will not lift Iranian cargoes from July as an emergency plan by state insurers to provide limited cover for Iran voyages has been delayed while the insurance regulator requests more details.

"It is becoming difficult. You settle one clause of the sanctions, then you realize you are trapped in the second," said one of the sources, who asked not to be identified because of the sensitivity of the issue.

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

In July, Indian state refiners were planning to buy about 173,000 bpd of oil from Iran, the sources said, with MRPL aiming to import five aframax cargoes in July, and HPCL planning for two suezmax cargoes. Purchase volumes fluctuate from month to month.

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

SOVEREIGN GUARANTEES LOOK UNLIKELY

Indian state insurers led by General Insurance Corp (GIC) agreed to provide $50 million of cover for Iran shipments from July to cushion against the sanctions, which are targeted at Tehran's nuclear ambitions and oil revenue.

State refiners, which would normally have booked ships for the next month by now, will seek government approval to use Iran insurance, as sovereign guarantees for such purchases look unlikely.

"We are thinking of making some alternative arrangement, which could be asking the government to allow us to lift cargoes on a CIF basis," an official of refiner HPCL said, adding that it was also not clear whether local insurance firms would cover Iran oil cargoes.

Tighter sanctions by the United States and the European Union on Tehran will bar extending insurance and re-insurance facilities for Iran oil shipments anywhere in the world.

Iran's other major Asian buyers -- South Korea, Japan and China -- have either had to halt imports from July or are also scrambling to find alternative insurance options.

Iran's exports have sunk to the lowest in 20 years -- about 600,000 bpd less than rates of 2.2 million bpd last year.

Indian private firm Great Eastern Shipping Co. last week told state-run Mangalore Refinery and Petrochemicals Ltd it could not ship Iranian oil from July as European sanctions had hit the availability of insurance cover, sources privy to the development said.

"We are evaluating all options. In our contract with MRPL we have a right not to lift cargoes from a load port if there is no adequate cover. We don't intend to breach any sanctions at any point. We don't want to take undue risk. If the cover is inadequate we may not go to Iran," Anjali Kumar, spokeswoman for Great Eastern, told Reuters in an e-mail response.

She did not comment on whether the firm had refused to lift MRPL's Iran cargoes from July.

MRPL has been getting its oil cargoes covered by Iran Insurance Company, after domestic insurance companies did not extend marine insurance for such purchases.

Sources at Hindustan Petroleum and Indian Oil Corp said their shipper, Shipping Corp of India, had also told them it might not be able to ship Iranian oil from July, due to lack of insurance cover.

A Shipping Corp source confirmed this. "Yes we have written to them (IOC and HPCL) ... because there is no indication from General Insurance Corp."

India, which has been gradually cutting back imports of oil from Iran over the last few years, aims to buy 11 percent less oil from Iran than last year under new deals from April, raising New Delhi's chances of getting a waiver on Washington's sanctions.

The United States, which has granted a waiver to Japan and 10 EU states, could announce a new list of countries that will receive exceptions this week.

(Reporting by Nidhi Verma; Editing by Clarence Fernandez and Jo Winterbottom)

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