Iran oil sanctions bite deeper as shippers, insurers back off

London: Though a full European embargo on Iran's crude oil won't be in force until mid-year, a ban on new insurance and shipping on Iranian oil is throwing spanners in the trade as shippers join some oil majors in stopping their dealings with Tehran.

Danish shipping company AP Moller Maersk said on Friday that it stopped taking new orders to transport Iranian crude while French oil major Total said it had halted buying Iranian crude for its refineries and trading activities.

The news also came after the International Energy Agency said the new sanctions were set to complicate Iranian exports by causing marine insurance and ship owners to be cautious, putting some of Tehran's oil sailings at risk.

Henrik Ramskov, chief operating officer of Maersk's tankers unit, said in an emailed statement Friday that, "as of 24 January 2012, all new fixtures involving Iran and all carriages of products with Iranian origin have been suspended," though he added that existing commitments would be honoured.

Pressure

On January 24, the European Union published a string of new sanctions against Iran as it ratchets up pressure against the country's nuclear programme. The sanctions included a full ban on the purchase of Iranian oil, though it won't kick in until July 1. The US has also decided to ban oil trades with Iran's central bank from mid-2012.

An EU spokesman said that, as part of the measures, "oil transport and insurance, etc. [are] prohibited, unless there is an existing contract from before 23 January, in which case an exemption applies until July 1."

So far, Iran's crude-oil exports eased only slightly in January, falling by 40,000 barrels a day to 2.10 million barrels a day, according to an oil-industry official. But there is evidence that shipping companies and insurers are backing away from the Iranian market.

"We've been able to lift [Iranian crude oil], but it seems there is a problem with the insurance companies. We're trying to find out whether that's going to affect us," said a source at a major European refiner that buys Iranian crude oil.

Last month, a top insurance official said the planned European oil embargo will significantly narrow options and increase the cost of insuring any tanker that ships Iranian oil anywhere in the world. Andrew Bardot, secretary and executive officer of the International Group of P&I Clubs, by far the largest body of tanker insurers, said the EU's sanctions "will make the arrangements more complicated and certainly more expensive" for whoever wants to transport Iranian oil even outside the EU.

Complication

The IEA, which advises oil consumers in industrialised nations, said in a report earlier Friday that the US and EU measures "will likely complicate crude [oil] shipments" from Iran.

Even it sanctions don't directly prohibit companies from doing business with Iran, shipping companies may decide that the extra cost involved in ensuring they are compliant with all the different international sanctions as well as increased insurance costs aren't worth the effort.

"There's a domino effect of all these things hitting the shipping companies and, at some point, it may become too difficult to manage," said Michael Zolandz, a Washington-based sanctions lawyer at firm SNR Denton.