(Reuters) - Indian shipping firms will continue to transport Iranian crude even if limited insurance coverage due to tightening Western sanctions leaves them financially exposed to a spill or accident, a top executive and industry sources said.
Tough new European Union sanctions aimed at stopping Iran's oil exports to Europe also ban EU insurers and reinsurers from covering tankers carrying Iranian crude anywhere in the world from July. Around 90 percent of the world's tanker insurance is based in the West, so the measures threaten shipments to Iran's top Asian buyers China, India, Japan and South Korea.
The sanctions seek to stem the flow of petrodollars to Tehran to force the OPEC member to halt a nuclear program the West suspects is intended to produce weapons.
Shipping Corp of India, which is the country's largest shipping firm, Great Eastern and other Indian tanker firms have asked state insurers to step in and provide up to $50 million in third-party liability coverage per tanker voyage.
The amount is a fraction of the typical $1 billion coverage that a supertanker carrying around 2 million barrels of crude would have from reinsurers against personal injury and pollution claims.
India's shipping companies would run the risk of shipping the crude even though they would be liable for any claims above $50 million in the case of an incident, industry sources said.
"To the best of our knowledge, over the last 10 years, none of the Indian shipping companies carrying Iranian crude oil into India has had any major incident relating to pollution or anything," Shipping Corp Chairman S. Hajara told Reuters on the sidelines of an industry conference in Singapore.
"Since there have been no claims in 10 years, we felt if we have cover of $50 million as a commercial organization it would be worthwhile for us to continue in that business."
India is the world's fourth-largest oil importer and one of the biggest customers for Iran's 2.2 million barrels per day (bpd) of oil exports. On average, there are 10 crude shipments a month from Iran to refineries on the west coast of India.
A major oil spill from one of these tankers could leave Indian shipowners liable for billions of dollars in damages.
The most expensive oil spill was the Exxon Valdez disaster in Alaska in 1989, which industry groups estimate has cost as much as $7 billion so far in clean-up, fines, penalties and claims.
"Exxon Valdez happens once in decades. If you think all your risk must be covered, then you should not be in business," Hajara said, adding that liability limits for an oil spill have extended beyond $1 billion and $3 billion for other incidents.
"We have been very clear that Indian insurance companies will have a tough task, if not impossible, to get reinsurance if the sanctions really set in. We know if we ask for a huge amount of cover we will never get it."
The biggest reinsurers are located in Europe and according to some industry experts the only way to cope with the loss of European reinsurers would be for governments of importing countries to provide federal guarantees to cover any expenses relating to personal and pollution claims.
Shipowners have asked the government for sovereign guarantees, but have not received a response, Hajara said. Indian firms, along with Japan and South Korea, have also lobbied European officials for exemptions to the EU sanctions.
India's refiners are already cutting imports to comply with a separate set of U.S. sanctions requiring Iran's crude clients to significantly cut purchases. Refiners could cut imports by about a quarter in the 2012-2013 year that began on April 1, but are keen to keep the remaining imports coming.
In the fiscal year that ended on March 31, India's imports from Iran were less than 340,000 bpd, compared with the 362,000 bpd committed under annual term contracts. India is currently importing about 280,000 bpd.
A finance ministry source said the Indian government would consider any action necessary to keep oil flowing from Iran, India's second-biggest supplier after Saudi Arabia, including offering sovereign guarantees to shipments.