December 06-2013
The EU sanction on re-insuring tankers carrying Iranian oil will be lifted under the new Iran-Big Six agreement and many commentators are saying that will cause Iranian oil sales to surge quickly,
But analysts in the insurance industry doubt that.
For one thing, re-insurers don’t appear eager to jump back into a market that might disappear in six months if a permanent agreement isn’t reached by Iran and the Big Six.
Others say the big firms that do a lot of business in the United States are afraid of angering their American clients by doing business with Iran and therefore won’t do any business with Iran.
But the biggest problem appears to be bureaucratic complexity—the sanctions aren’t all being rescinded, just some parts are being lifted for some time, and many people in the business appear reluctant to try to figure out all the complexities.
Mike Salthouse, who runs the North Protection & Indemnity Club, one of the world’s major re-insurers, said he didn’t expect much change from the lifting of the re-insurance sanction because they are other interlocking sanctions that are not coming off.
“I suspect unless they relax some of the currency transfer restrictions and the restrictions on payments of SDNs [Specially Designated Nationals or Iranian businesses and people with whom it is illegal to do any business], there are still going to be a lot of operational problems in trading with Iran,” he told Reuters.
Andrew Bathurst, an independent insurance broker, said, “The US has put a lot of pressure on insurers to do as little as possible with Iran. The biggest problem has been that an increasing number of insurers have US capital, and they are terrified of sanctions. Because of the uncertainty—however well the Americans think they have defined it—you will have to be a very brave CEO if you allow an insurance company to underwrite Iranian business, so insurers will sit on the fence.”
Patrick Murphy with the law firm of Clyde & Company said, “It’s going to be uniquely complicated to lift EU sanctions on the carriage of Iranian crude by reference to limits permitted by the US because the two sets of legislation [EU and US] do not presently cross-refer to each other.”
Neil Roberts a senior executive at Lloyd’s Market Association, said, “It will take some time to implement even this limited unraveling as there is such a complicated regime in place that it will need to be uncorked very carefully…. To the extent that trade touches on Iran, people will have to be very careful.”
Even Iran isn’t claiming that the lifting of the insurance sanctions will boost sales. Deputy Oil Minister Kazem Vaziri-Hamaneh said the big change would be that Iran’s oil buyers would now use their own vessels to carry Iranian oil and free up Iranian tankers.
Some said Iranian tankers could then carry oil to new buyers. But others say that frees up Iranian tankers to store more of Iran’s unsold oil.
The only two countries talking publicly about resuming purchases of Iranian oil are India and Sri Lanka. Sri Lanka’s sole refinery was designed with Iranian oil in mind. It has not bought any Iranian oil in more than a year and said it was prepared to resume buys once it understood the details of the Iran-Big Six agreement.
But the US has said it will sanction any country that buys more oil than it has bought in the last six months—and Sri Lanka has bought no Iranian oil in more than a year. So that appears to kill Iranian sales to Sri Lanka.
For the same reason, India will be confined to the reduced level of its purchases from Iran the past six months.
The sanctions changes also allow Iran to sell petrochemical products. Deputy Oil Minister Vaziri-Hamaneh, however, said Iran has been able to sell all its petrochemical production despite sanctions. If so, there would be no gain for Iran from this sanctions shift.
It is possible, however, that Vaziri-Hamaneh was just making up his claim. It is also possible that Iran was able to sell all it produced by cutting back production sharply.
At the International Energy Agency (IEA) in Paris, Director General Maria van der Hoeven was asked about a sudden surge in Iranian exports. He said it was unlikely Iran could rapidly boost its output to its old levels, presumably because much work will be required before production can be boosted at old fields where many wells have been shut down.