Sovereign guarantee for ships can beef up crude imports from Iran.

As European Union sanctions on Iran took effect on July 1, India's crude imports from the West Asian country are facing hardships. India in fact is trapped between the lack of political will and a willingness to ramp up `less-expensive' imports. As Iranian crude is among the cheapest for India, imports are welcome, but the lack of political will is halting it in its tracks. In the absence of international insurance cover for transporting Iran crude, local refiners have begun loading crude in Iranian tankers, owned by the National Iranian Tanker Company (NITC), Islamic Republic of Iran Shipping Lines (IRISL Group), or their subsidiaries. But all refiners keep mum over their plans, realising the sensitivity of the issue.

Last week, Reuters reported that Indian refiners are scheduled to lift about 3,00,650 barrels per day (bpd) of Iranian crude oil in July. But refiners, especially the state-owned companies, are extremely tightlipped about their moves.

And the fact they are all at the mercy of Iran shipping companies for their imports has not gone well with the importers. Worse, they all have to shell out more as they are forced to go for CIF (cost, insurance and freight) imports as against the routine FoB (free on board) imports, where the importer takes care of shipping and insurance.

For instance, Hindustan Petroleum Corp (HPCL) has roped in a Suezmax tanker belonging to NITC and is scheduled to lift crude from Kharg, off Iran, this month. Mangalore Refinery and Petrochemicals (MRPL), a subsidiary of the state-owned oil explorer ONGC, is expected to load crude in five Iranian Aframax tankers. MRPL is however buying an additional cargo from Saudi Arabia in July to partly offset the decline in Iranian volumes.

As it could not immediately provide a guarantee for shipping Iranian crude, India allowed state-owned refiners to import crude from July 1 on CIF basis for six month, with a couple of conditions. Imports would shift back to FoB as and when the state-owned reinsurer, General Insurance Corporation (GIC), starts providing Protection and Indemnity (P&I) or Hull and Machinery (H&M) cover, or US/EU sanctions are lifted, whichever occurs earlier, said the circular.

With EU sanctions, crude importers in Asia, Iran’s biggest market, are struggling to organise their deliveries. Japan, a major buyer of Iranian crude, passed a fresh law, effective June 27, ahead of EU sanctions, to allow the Japanese government to cover up to $7.6 billion for each tanker carrying Iranian crude bound for Japan in case of accidents. The Japanese Shipowners’ Association has welcomed Tokyo’s passing of a law to ensure continuous transport of Iranian oil to the country.

Imports by China are also facing some hiccups. A charter dispute between National Iranian Tanker Company and China’s SINOPEC over freight cost has delayed delivery of Iranian crude to China.

Due to EU sanctions, Chinese tanker operators are also struggling for insurance cover.

India is yet to decide on a sovereign guarantee for local tankers. Domestic tanker owners such as Shipping Corporation of India (SCI), GE Shipping and Mercator would have been happy to send their tankers, but the lack of guarantee has prevented them from plying on the Iran route. GIC, the only reinsurer in the country, had agreed to provide thirdparty liability cover of $50 million to Indian flag carriers per Iranian voyage from July, but it is yet to get regulatory approval.

India’s trade relations with Iran date back to several decades. In fact, the two countries set up a shipping joint venture three decades ago to beef up bilateral trade. Irano Hind

Shipping Company, a joint venture between IRISL (51 per cent) and SCI (49 per cent), owns at least half-adozen crude tankers and bulk carriers. At a time when crude importers in Asia are toiling to charter ships, India could have been at the forefront, and sourced more crude from Iran at a much lower cost.

And this would have helped India cut its everballooning import bill. But we have let down a great opportunity. It is time for India to quickly finalise the sovereign guarantee and push Indian tankers into the trade.

Source : wrd.mydigitalfc.com