Japan thus becomes the first country to provide such cover. The lack of insurance protection has turned out to be more effective in discouraging purchases from Iran than the US sanctions themselves.
The insurance hurdle was imposed by the EU which has banned any European firm was insuring or reinsuring tankers carrying Iranian oil as of July 1. While there is plenty of local insurance, 95 percent of tanker insurance is re-insured in Europe. With the loss of re-insurance, local insurers around the world have closed their books to tankers carrying Iranian oil.
The legislation allows the Japanese government to provide insurance cover of up to $7.6 billion for each tanker carrying Iranian oil to Japan. It will not cover tankers carrying Iranian oil to other countries.
In the first half of last year, Japan bought an average of 341,000 barrels a day of Iranian oil. That was 14 percent of all of Iran’s exports. That represented about 10 percent of Japan’s imports. But this year Japan is importing even more oil because it has shut down all but one of its nuclear power plants in the wake of the tsunami crisis. It needs more oil to run re-opened oil-fired electricity generating plants.
Japanese officials have made clear they want to continue buying Iranian oil, but they have made promises to Washington to cut back on enough Iranian oil to qualify for an American sanctions waiver. While there has been no official announcements, Japanese news reports anticipate that purchases of Iranian oil will be reduced 15 percent to 20 percent this year.