Bangalore: The demand by Iran for a letter of undertaking worth $1 million to release an Indian ship detained in that country since 13 August has put the ship’s owner and its insurer in a tight spot and could well test the sanctions regime imposed by Western governments on the West Asian country.
In shipping insurance, such letters are always given by the ship’s insurer, said Sunil Thapar, the director looking after the bulk carriers and tankers division at state-run Shipping Corporation of India Ltd.
MT Desh Shanti, the detained double hull tanker owned by Shipping Corp, was insured with The Steamship Mutual Underwriting Association (Bermuda) Ltd, said Jonathan Andrews, head of underwriting at the London office of the ship insurer. The Steamship Mutual is a member of the International Group of Protection and Indemnity Clubs (I G Clubs).
“We are asking the insurer to give the letter of undertaking sought by Iran and this is the main reason for the delay in getting the ship released,” Thapar said.
The ship was detained by Iranian authorities while on her way to India from Basra in Iraq carrying crude for state-run oil refiner Hindustan Petroleum Corporation Ltd, allegedly for causing pollution in Iranian waters.
Shipping Corp has refuted the allegation. “Our ship has not caused any pollution, but Iran is insisting on a letter of undertaking for $1 million to release the ship,” said B.K. Mandal, finance director of Shipping Corp.
The letter of undertaking would guarantee payment for clean-up operations.
“Why should we give the letter of undertaking? We are not responsible for the pollution,” Mandal asked.
“We are not in a position to make any comment,” said Andrews at The Steamship Mutual. Western nations have imposed sanctions on Iran because they suspect Tehran is developing nuclear weapons. Iran says its nuclear programme is intended for peaceful purposes.
The European Union has banned the purchase, transport, finance and insurance of Iranian oil since 1 July 2012.
Following the ban, IG Clubs has stopped providing third party liability cover to ships transporting Iranian crude.
The 13-member IG Clubs, a London-based group, insures close to 95% of the world’s tankers against claims involving pollution damage and wreck removal. Each of its members is termed an IG Club.
“The IG Club (The Steamship Mutual Underwriting Association (Bermuda) Ltd) that has insured the Shipping Corp vessel could give such a letter of undertaking if the voyage was not covered under sanctions,” said an executive at a ship insurance firm based in London, who did not want to be named.
MT Desh Shanti was carrying Iraqi crude and is not subject to sanctions. “In such a case, it would be treated like any other voyage, provided there are no international sanctions against the country asking for the letter of undertaking. Here, the case is complicated because there are sanctions against Iran which has sought the letter of undertaking. It is now a matter for the ship’s owner and the ship’s insurer to decide,” this person added.
“Even if they are willing, the IG Club is not able to give a letter of undertaking due to the sanctions,” said a Shipping Corp executive, speaking on condition of anonymity.
“Iran is subjected to heavy sanctions by the UN, the US and the European Union. All Protection and Indemnity Clubs have to abide by the sanctions regime,” said an executive at the Mumbai office of a London-based shipping insurance firm asking not to be named.
“The problem facing the protection and indemnity club is that it will have to find a legal mechanism to pay,” said another Mumbai-based executive who represents a ship underwriting firm in London. “Until and unless the legality of the detention is established, how can the insurer pay?” he said, adding that the Indian ship was caught in the “cross-fire” of a border dispute between Iran and Iraq.
India is the world’s fourth-largest oil importer and was until June 2012 the second biggest customer of Iran, the world’s fifth biggest oil producer.
Iran has been struggling to sell its crude in the face of sanctions. Iraq has now overtaken Iran as the biggest supplier of crude to India.
India imported about 7.2% of its oil from Iran in the last fiscal year, down from 10.5% in the 12 months prior to that.