* Asian countries still importing Iranian oil
* Legal suits in event of spill seen taking years
By Jonathan Saul and Myles Neligan
LONDON, Nov 14 A ban on European Union insurers
covering Iranian oil exports has forced shipowners to fall back
on new, untested insurance providers, raising fears that
governments may have to pay in the event of an oil spill.
The July ban, part of a range of Western sanctions aimed at
forcing Iran to scrap its disputed nuclear programme, has cut
off the Iranian oil trade from Europe's so-called Protection and
Indemnity (P&I) clubs, which account for the majority of cover
for the tanker market.
These specialist insurers dominate the market for insuring
ocean going ships against pollution and injury claims, the
biggest costs when a tanker sinks, leaving vessels transporting
Iranian crude with limited alternative options.
"The unavailability of reliable insurance is a risk for
states, and particularly littoral states whose waters ships like
this could be passing through," said Nigel Carden, deputy
chairman of the UK P&I club.
"If you have a spill off Singapore or Malaysia, we know
those are extremely expensive, it is a significant risk."
Europe and the United States are off-limits to Iranian
exporters because of the sanctions regime, but Asian countries
continue to buy its oil.
Most ships serving this export trade have turned to Iranian
insurer Kish, a newly created player modelled on the P&I clubs,
or to state-backed insurance schemes set up by importing
The biggest potential drawback for vessels insured by Kish
is that it may struggle to pay claims outside Iran because the
sanctions prevent banks from channelling cash out of the
"While we only speculate on the outcome, I would anticipate
it to be problematic," said Samuel Ciszuk, analyst with
British-based consultancy KBC Energy Economics. "Money transfers
in and out of Iran are tough. There is a big question about
their ability to stump up the money."
Others doubt whether Kish, founded last year and dependent
on reinsurance from a state-run body to cover the bulk of its
liabilities, can provide the same degree of protection as
western P&I clubs.
Those P&I clubs use the world's top re-insurance companies
to boost their capacity to pay claims.
"The biggest question that Kish P&I poses ... is whether
this newly established club is credible, financially reliable,
and truly independent as it purports itself to be," said
Emanuele Ottolenghi of the Foundation for the Defense of
Democracies, a Washington-based think-tank which has advised the
U.S. government on sanctions against Iran.
Tehran-based Kish did not respond to requests for comment.
The insurer told Reuters in March it was confident it would be
able to find a legal way around the ban on banks transferring
money out of Iran.
Kish says it can pay claims of up to $1 billion, matching
the protection available from European P&I clubs, with all
liabilities above $500,000 reinsured with state-run Central
Insurance of Iran.
In the event of an uninsured spill, a maximum of about $800
million could be covered by the International Oil Pollution
Compensation Fund, a safety net funded by companies that receive
shipments of imported oil in participating countries. Anything
above that would likely be borne by taxpayers in the affected
The costliest oil spill involving a tanker to date was the
Exxon Valdez disaster in Alaska in 1989, which industry groups
estimate has cost as much as $7 billion in clean-up expenses,
fines, and penalties.
"There could be major oil pollution involving a collision
with a passenger ship as well, and then you'd have a nightmare
scenario with a lot of loss of life, a lot of oil pollution,
possibly a wreck removal," said Andrew Bardot, executive officer
of the International Group of P&I clubs, whose members provide
liability cover to 95 percent of the world's tanker fleet.
"All of those liabilities would stack up to a very, very
large sum of money and the bill would have to be picked up by
the impacted states, and they certainly wouldn't be able to
compensate victims to the level that we would," said Bardot.
A state-backed insurance programme for Iranian oil shipments
set up by key importer India covers third-party claims to a
maximum of just $50 million, a fraction of the limit of up to $1
billion offered by P&I clubs.
Industry sources say claims brought against the Iranian
government through the courts will be lengthy and complex.
"The problem is going to be collecting the money if there is
a big spill," said Clay Maitland, managing partner with the
Marshall Islands Registry, the world's third largest open ship
registry. "It may take years, many years to collect. It might
very well take 20 or 30 years of lawsuits or more to collect
Shipping officials say none of the alternative arrangements
that have sprung up to fill the gap left by western P&I clubs
offers a the same level of financial security.
"It is apparent that ships can get insurance cover from some
governments and some insurers," said Peter Hinchliffe, secretary
general of the International Chamber of Shipping, which
represents more than 80 per cent of the world's merchant fleet.
"Unfortunately neither of these options offers the financial
security provided by the International Group Clubs and this
means that if there is an unfortunate incident the security of
payment against claims may not be secure."
The withdrawal from Iran of the world's top ship
classification societies, tasked with verifying vessel safety
and environmental standards, has raised other concerns over
insurance cover. The companies, which exited due to sanctions
pressure and fearing the loss of U.S. business, provided vital
certification to secure insurance cover and ports access.
Their departure has raised questions over whether Iran can
keep up the previous top class maintenance of its oil tanker
"Without any of the elite classification societies or
insurance cover offering technical and financial services to
those still moving Iranian crude, you have wonder what will
happen should anything go wrong," said a senior ship industry
"The risks of an incident rise every time technical support
is withdrawn from those who continue to ply this trade."