Asia's top buyers of Iranian crude oil have found ways to continue the imports, bypassing the U.S. and European Union sanctions on trade with Tehran, to avoid depending entirely on the Saudi Arabian oil amid unsteady supplies from Libya and Iraq.
Japan's parliament Wednesday approved government guarantees on insurance for crude oil cargoes from Iran, which permits the government to provide each tanker carrying the Iranian oil a risk cover of up to $7.6 billion, Reuters reported.
China had decided to request Iran to cover the risk themselves and deliver the cargoes, said the Reuters report.
The EU ban on member countries importing oil from Iran, which includes a ban on EU insurance firms from covering Tehran's exports, has been creating problems for Japan, South Korea, China and India, which rely on EU companies for insurance.
India has cleared its way to continue Iranian oil imports with the new rupee payment mechanism under which the Indian oil companies that import oil from Iran will deposit the payments into rupee accounts in UCO Bank and these funds will be used by Iran to purchase agricultural products and medicines from India, a Dow Jones report has said.
Around $550 million equivalent (in rupees) will be deposited into the account as a first tranche in the next couple of days, Rafeeque Ahmed, president of the Federation of Indian Export Organization, was quoted as saying.
Indian goods worth $500 to $600 million would be shipped to Iran within two to three months after the new mechanism is put to use.
The decision to activate the mechanism was made after the prolonged uncertainty following a budget proposal in March that promised tax exemptions for such transactions, the period during which crude oil payments for Iranian imports were held up.
Indian tax structure requires rupee transactions between two domestic entities to pay a general-service tax, but with the latest government approval, the rupee payment mechanism will be exempted from taxes. A total of $4.5 billion is expected to be transacted through the rupee account.
However, India has yet to figure out ways to circumvent the insurance ban since Indian insurers lack the financial capacity to cover the risk, Indian media has reported. Most shipping companies are unwilling to operate on the India-Iran oil route without adequate risk cover, which is bound to affect imports.
Public-sector insurance companies and the domestic reinsurer General Insurance Corporation-Re (GIC- Re) may be able to provide $50 million P&I cover per ship, which is much below the required $120 million risk cover.
India and Japan recently won an exemption to the U.S. sanctions because they significantly reduced their volume of crude oil purchases from Iran.
Iranian oil accounted for nearly 9 percent of Japan's and 12 percent of India's total oil imports last year, which both the nations had to cut back following international sanctions.
Meanwhile, South Korea is planning to stop the imports in July due to the insurance ban. Seoul is not considering state insurance; instead, it has been lobbying the EU without success to delay or waiver the ban on EU insurance firms.
The EU would not cancel or delay the ban on oil tankers, EU Energy Commissioner Guenther Oettinger said at an industry conference last week.
A congressional report submitted in March said Iran's oil sales for that month fell dramatically from prior levels.
Once the EU embargo is fully implemented, Iran's oil sales might fall by as much as 40 percent (1 million barrels per day reduction out of 2.5 million barrels per day of sales). Iran was widely assessed as being unable to economically sustain that level of lost oil sales, the report said.