June 7 (Bloomberg) -- Japan’s Cabinet is poised to approve a bill giving sovereign guarantees for the nation’s oil tankers loading Iranian crude, potentially undermining Western sanctions targeting the Persian Gulf nation’s nuclear program.
The government plans to provide as much as $7.6 billion so that ship owners and petroleum refiners can maintain insurance when hauling crude from Iran, according to two government officials with direct knowledge of the law, who declined to be identified before the Cabinet gives consent to the legislation as soon as tomorrow. The bill will be submitted to the Diet, or national parliament, after the Cabinet endorses it, they said.
The European Union announced a ban on Iranian oil in January that also prohibited insuring the shipments. The move affected 95 percent of the world’s tankers because they were covered by organizations following EU law. A law signed by President Barack Obama on Dec. 31 blocks countries’ access to the U.S. financial system if they can’t show they’re reducing oil imports from Iran. Japan and 10 European nations received exemptions in March for a renewable period of 180 days.
“If there are insurers in the Far East who can insure this without relying on Europe, then it will to some extent undermine the sanctions regime and the pressure the West is trying to put on the Iran government to stop its nuclear ambitions,” Chris Zavos, a London-based lawyer and partner at Norton Rose LLP, said by phone today.
July 1 Deadline
The EU introduced the embargo against Iran to convince the country to halt its nuclear program, which it alleges is for weapons production. The government in Tehran faces four sets of United Nations sanctions urging the country to stop enriching uranium.
Japan imported 362,000 barrels a day of crude from Iran in 2010, making it the country’s second-largest buyer, after China, according to data from the U.S. Department of Energy. To comply with the European sanctions, ships carrying Iranian oil would need to unload before July 1. A very large crude carrier hauling 2 million barrels of oil would take about four weeks to reach Japan from Iran, according to the e-ships.net website.
Banks that allow ships to change to an insurer who’ll cover Iranian shipments would potentially violate U.S. sanctions because such a move might be interpreted as facilitating trade with the Persian Gulf nation, according to Clare Hatcher, a London-based consultant at Clyde & Co., an international trade law firm. The U.S. has restricted dealings with Iran since 1979, when militants took 52 hostages at the American embassy in Tehran.
Nobody answered a telephone call at Japan’s Transport Ministry press office.
The Japan Ship Owners’ Mutual P&I Association, which insures owners against risks including spills and collisions, will lose access to Europe’s reinsurance market for Iranian cargoes after the European embargo comes into effect July 1.
“For that oil to get to Japan, it needs P&I cover,” Mike Roderick, a London-based partner at Clyde, said by phone today. “China, Japan and India are all looking at sovereign guarantees because they are major importers of Iranian oil.”