India insures Iran oil imports to safeguard flow: Sources.

NEW DELHI: India has given state-run insurers approval to provide limited cover to its ships transporting Iran's oil, allowing refiners to avoid any interruption in supplies because of the constraints of an Iranian fleet struggling with tough Western sanctions.

An oil embargo by the European Union took effect on July 1 and bans firms from insuring Iranian shipments, forcing China and India to ask Iran's oil shipper, NITC, to deliver crude in its vessels.

Much of Iran's fleet is employed as floating storage for the oil it is struggling to sell because of the impact of sanctions, making it tough for the Islamic Republic to keep supplies flowing to its top two crude buyers.

Iran's July oil exports will be more than halved from last year because of the sanctions imposed due to concerns the country is attempting to build a nuclear bomb, though Tehran says its nuclear activities are peaceful.

India has already cut its Iranian oil purchases by more than a fifth, enough to win a waiver from separate U.S. sanctions, and is expected to load around 300,000 barrels per day this month. But NITC has few of the vessels of the size needed to meet the requirements of at least one Indian refiner, Mangalore Refinery and Petrochemicals Ltd.

India's Insurance and Regulatory and Development Authority has agreed to allow state-run insurers to replace their European counterparts, enabling at least Shipping Corp Of India to resume transporting Iranian oil, officials said.

"This is a classic case of how three Indian industries -- insurance, shipping and oil -- are coming together for the nation and its energy security," Anil Devli, chief executive of the India National Shipowners' Association, told Reuters.

Domestic insurance firms are allowed to provide ship owners carrying Iranian oil $50 million in cover against pollution and personal injury claims, also known as protection and indemnity (P&I) insurance, Devli said. They will also provide hull and machinery cover of $50 million, to protect ships against physical damage.

General Insurance Corp of India will be the re-insurer and cover will be extended by any of four state-run non-life insurance firms: United India Insurance, New India Assurance Co. Ltd., National Insurance Co. Ltd. and the Oriental Insurance Co. Ltd.

"We have received a letter from the shipping ministry ... saying General Insurance Corp has provisionally been allowed to arrange cover," said a source at a state-run refiner.

The amount of P&I cover is a fraction of the typical $1 billion that a very large crude carrier (VLCC) carrying around 2 million barrels of crude would have from reinsurers against personal injury and pollution claims.

India's shipping companies will be responsible for paying any claims above $50 million, leaving them exposed to potentially billions of dollars in the event of an oil spill.

"$50 million is not enough. If you had wreck removal, you would burn through $50 million in just getting the ship out before going anywhere near coverage for the pollution itself," said Ian Teare, Singapore-based maritime insurance expert with legal firm Norton Rose.

Source : economictimes.indiatimes.com