(Platts) -- Japanese refiners will be able to maintain normal shipments of Iranian crude, "at least for the time being," thanks to a new law that will compensate buyers of Iranian oil for potential loss of protection and indemnity cover when European Union sanctions against Iran come into effect as scheduled on July 1, the president of the Petroleum Association of Japan Yasushi Kimura said Thursday.
"We had been increasingly concerned about our ability to lift [Iranian crude] in the event of the EU deciding to move ahead to suspend reinsurance cover in relation to its sanctions against Iran," Kimura told a press conference in Tokyo. "However, we should now be able to maintain our Iranian crude imports smoothly, at least for the time being... That would contribute our stable energy supply."
The new law is set to take effect June 27 after the upper house of the Japanese parliament passed the special measures bill Wednesday. The lower house passed it on June 15.
The Japanese cabinet approved the bill June 11 as an emergency measure despite there being no cabinet meeting that day. The bill was then submitted to parliament later in that day.
Under the legislation, called the special measures law, the Japanese government will guarantee insurance cover of up to $7.6 billion for tankers transporting Iranian crude oil to make up for the potential loss of cover from EU-based P&I clubs.
Currently, Japanese shipowners can obtain up to $7.6 billion in cover for eventualities ranging from an oil spill to wreck removals and fishery claims, but this could drop to $8 million, the maximum the Japan P&I Club will be able to guarantee when the EU sanctions take effect.
As Japan has ratified the Civil Liability Convention for oil pollution damage, local shipowners and charterers must have a minimum of $150 million of oil spill insurance coverage per VLCC to enter any port in Japan, sources said previously. At present, there is a $1 billion cap on oil spill cover.
Although the EU's imminent embargo on the import of Iranian oil does not directly affect Japan, there will be an impact from a ban on insurance cover for ships carrying Iranian crude because most of the world's P&I insurance is provided by EU-based insurers.
Tokyo has been trying to persuade Brussels to allow cover for non-EU countries to continue beyond June 30.
Despite the new legislation to make up for any loss of P&I cover, Japanese loadings of Iranian crude could see a drop in July from levels of recent months, sources said Thursday.
Most Japanese buyers of Iranian oil have submitted their nominations for July loadings totaling 100,000-200,000 b/d, roughly similar to purchases in recent months, despite the uncertainty over shipping insurance.
However, most Japanese buyers have deferred nominations for loadings to towards late July to ensure they have enough time to exercise their right to invoke force majeure if the EU does not agree to allow insurance cover to continue once the sanctions are in force.
The National Iranian Oil Company has already agreed to additional force majeure clauses that Japanese buyers will be able to invoke if sanctions prevent or limit execution of contracts. This would require notice of 30 days from the Japanese companies.
Sources said Thursday that Japanese refiners, their insurance concerns having been alleviated by the new law, would only now start making shipping arrangements for their July loadings from Iran.
So far, sources said, no Japanese refiners have arranged loadings of Iranian crude in early July. They said a cargo was scheduled to load on June 28, the last lifting before the EU insurance ban come into effect.
But the likely loading congestion in the latter part of July could limit how much oil the Japanese can lift next month. This is because the insurance provision for cargo and hull damage from a group of non-life insurers is capped at Yen 30 billion ($380 million) for the 12 months from April, which means that they cannot take much more than 200,000 b/d in total.