NEW DELHI (Reuters) - Iran has offered to underwrite insurance for its vessels to keep oil exports to India flowing, after New Delhi asked for assurances to help halt a fall in shipments.
Letters seen by Reuters show Iran is offering sovereign guarantees of up to $1 billion per incident to back its ships sailing to India, its second biggest oil customer after China.
India’s crude imports from Iran have been hit by insurance problems triggered by western sanctions, falling by 59.4 percent in June, and the state guarantee could keep oil revenues flowing.
In letters seen by Reuters from Iran’s industries, mines and trade minister Mehdi Ghazanfari and Oil Minister Rostam Ghasemi told India that liabilities of $50 million to $1 billion are covered by “sovereign guarantee and government special fund”.
The two ministers said Iran’s finance minister will issue a final letter on the sovereign guarantee in due course.
India abides by United Nations sanctions on Iran but does not follow U.S. and European Union measures which are aimed at choking off funds to a nuclear programme which the West says is a drive to achieve a weapons capability.
With limited options available, India had sought sovereign guarantees for the Kish and Moallem protection and indemnity (P&I) clubs that insure Iranian vessels against personal injury and environment clean up claims.
European Union sanctions on insurance from a year ago bar members of International Group of P&I - who account for the majority of cover for the tanker market - from covering Iranian shipments. U.S. sanctions from July 2013 forced foreign container shipping lines to shun business with Tehran.
New Delhi had given a temporary approval to the two clubs but wanted Iran’s backing longer term.
India will take a call on extending long-term approval for the two clubs by end-September.
The biggest potential drawback for vessels insured by Iranian companies, even with a sovereign guarantee, is that they may struggle to pay claims outside Iran because Western sanctions prevent banks from channelling cash out of the country, shipping and insurance officials say.
For liabilities up to $50 million, a consortium of Iranian insurers led by the Central Insurance of Iran (CII) will provide the bulk of the cover, the letters said.
Kish, Moallem and CII have been blacklisted under the U.S. sanctions.
Ghazanfari also said in the letter that a similar guarantee is available for the Qeshm International Trust Alliance P&I Club. This company has not featured so far in the list of insurance clubs approved by India.
Editing by William Hardy