On 1 July 2012, a European Union (EU) ban on payment by EU-based insurers of any claims related to the shipment of oil or oil products across Iran’s borders comes into force. The ban will prevent buyers of Iranian oil from purchasing protection and indemnity (P&I) insurance in the London market.
The London-based International Group of P&I Clubs re-insures about 95 per cent of the world’s oil tankers, but from 1 July it will not be able to offer P&I cover for tankers carrying Iranian crude. Without insurance, tanker owners are expected to decline to call at Iranian ports, rather than take the risk of the potentially huge liabilities which could result from an uninsured accident. However, China and Japan, the largest and third-largest buyers of Iran's crude, are set to provide sovereign insurance guarantees, allowing trade with those countries to continue.
The EU has imposed economic sanctions on Iran since 2007. The sanctions regime has previously focused on Iranian government and government-affiliated entities, as well as the export of a discrete range of goods and services that could assist Iran in pursuing its nuclear and weapons of mass destruction programs.
However, the EU and US both imposed sanctions on Iran’s oil exports last year, hoping to force the country to abandon its nuclear program. The affect of these measures is already being felt, with Iranian oil exports dropping sharply as the imminent insurance ban puts off buyers.