Jan. 8 (Bloomberg) -- Indian Oil Corp. and two other state-run refiners said they will defer resuming purchases of Iranian crude by at least three months, having failed to get reinsurance for shipments after Europe said it would relax a coverage ban.
Indian Oil, which has an accord to buy 24,000 barrels a day from Iran in the year ending March 31, halted purchases after importing in the first quarter of the fiscal year. The nation’s biggest refiner won’t resume buying until insurance is available, said a person with direct knowledge of the matter, asking not to be identified before an announcement.
Hindustan Petroleum Corp., which planned to import 16,000 barrels a day, will hold back purchases, Refineries Director B.K. Namdeo said in an interview. Chennai Petroleum Corp., which hasn’t bought any oil this year from Iran, will continue to stay away, Managing Director A.S. Basu said.
Curbed shipments from Iran may hamper plans by Indian refiners to benefit from lower prices and freight costs. The South Asian nation planned to buy 11 million tons of Iranian crude this fiscal year after the European Union eased its sanction on insuring cargoes following a six-month accord between the Persian Gulf state, the U.S. and five other nations.
“The benefit of the Iran deal is not percolating down,” Basu said in an interview in New Delhi. “Our insurers are saying foreign reinsurers want to observe the situation for six months before extending any cover.”
European rules have yet to be rewritten, so reinsurers are still unable to provide cover to Indian refineries that purchase cargoes from the Persian Gulf state, Andrew Bardot, executive officer at the International Group of P&I Clubs, said by e-mail. The organization’s members cover most of the world’s merchant fleet against risks, including oil spills.
State-controlled Indian refiners halted Iranian purchases in May after insurers denied coverage to plants using Iranian crude following growing pressure of sanctions against the Islamic republic from the U.S. and Europe. Mangalore Refinery & Petrochemicals Ltd., which gets more than a quarter of its crude requirement from the country, resumed purchases in August using tankers underwritten by two Iranian insurers with sovereign guarantees from India.
“We’ve no option but to continue with Iran imports by taking this calculated risk,” Mangalore Refinery Managing Director P.P. Upadhya said in a phone interview.
Mangalore Refinery is operating its 300,000 barrels-a-day plant without any cover, Upadhya said. The company plans to buy 4 million tons from Iran this financial year and increase purchases next year, he said.
Moallem Insurance and Kish P&I Club, the two Iranian insurers, were given a six-month extension effective Dec. 28 to cover foreign ships arriving at Indian ports, Deepak Kapoor, India’s deputy nautical adviser, said in a phone interview. India has yet to roll out a proposed 20 billion rupee ($314 million) insurance fund to cover imports from Iran.
India imported 5.82 million tons of Iranian crude during the first eight months of the year started April 1. Imports were 13.14 million tons the previous year and 18.11 million tons in the 12 months ended March 2012.
Essar Oil Ltd., which operates India’s second-biggest refinery, also buys crude from Iran. Essar spokesman Rabin Ghosh declined to comment on the purchases.
“Some refiners are taking a calculated risk and importing Iranian crude,” Hindustan Petroleum’s Namdeo said. “We’ve decided to refrain from buying until the insurance issue is fully resolved. The European insurers are not yet willing to take the Iran clause out of their agreement.”
End of Ban
The end of the European Union’s ban on insuring ships carrying Iranian crude is part of an agreement that will give the country as much as $7 billion in relief from economic sanctions over six months in exchange for curbs on its nuclear program. Iran’s oil exports will be limited to about 1 million barrels a day, or 60 percent below 2012 levels, under Western sanctions that remain in force, according to a Nov. 24 White House statement.
Iran needs to export more oil to increase state revenue. Sanctions have deprived the nation of more than $80 billion, U.S. President Barack Obama’s administration said in a statement in November.
“We don’t really know the details of what happened in that deal between Iran and the U.S. because we haven’t been told anything officially,” Sunil Thapar, the director of bulk carriers and tankers at Shipping Corp. of India Ltd. said in New Delhi on Jan. 6. “As of today, nothing has changed regarding the insurance of oil cargoes from what it was before.”