Japan's Iran oil imports seen rising in 2016 with record shipping insurance

Tokyo (Platts)--30 Mar 2016 1053 pm EDT/253 GMT

Japan's oil imports from Iran look set to increase in 2016, with local importers finalizing their annual term contracts at flat or slightly higher volumes than a year ago, sources familiar with the matter said Tuesday.

A number of Japanese refiners and trading houses are also looking at possibilities of taking additional spot barrels from Iran if the economics make sense, following the lifting of sanctions, sources said.

One Japanese importer said it intends to keep its Iranian crude procurement unchanged for the foreseeable future but intends to look at ways to bring it to a "full-scale" or a pre-sanction level of Iranian crude procurements while closely monitoring the situation over handling the barrels.

Another Japanese importer said Japan's Iran oil imports could show a double digit percentage growth in 2016 from a year ago if Iran offers competitive spot supplies, despite the country's overall imports declining.

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Despite the lifting of US and EU anti-nuclear sanctions against Iran on January 16, post-sanction shipments out of Iran are facing problems due to the unavailability of protection and indemnity coverage from US insurers and ambiguity over reinsurance coverage from American reinsurers.

The International Group of P&I Clubs has recently raised the reinsurance level for shipping Iranian crude to a maximum of $580 million per tanker with immediate effect to make up for the missing US reinsurance cover as a result of the US' ongoing sanctions against Iran.

The recovered P&I cover is still below full P&I insurance cover of $7.8 billion but is an improvement from the $80 million of P&I cover from its member clubs under its previous arrangement in February.

The Japanese parliament approved Tuesday a record Yen 939.5 billion (approximately $7.8 billion) budget for Iran oil shipping insurance in fiscal 2016-17, up 7% from Yen 877.8 billion in the previous fiscal year ending March 31 due mainly to weakening of the yen against the US dollar, according to government sources.

The Japanese insurance cover for shipping Iranian oil will be effective from April 1 but will only be available for cargoes to Japan, not for elsewhere, the government sources said.

The Japanese government went ahead to continue providing a full insurance cover for shipping Iranian oil beyond April in the face of incomplete P&I cover even after sanction removals.

The government's move comes as sanctions could "snap back" into place in the event Iran reneges on provisions in the Joint Comprehensive Plan of Action, or JCPOA agreed for lifting sanctions between Iran and six world powers -- the UK, China, France, Germany, Russia and the US.

Under the current insurance framework until March 31, Japanese refiners currently have 15 VLCCs registered for government insurance cover for carrying Iranian oil for fiscal 2015-16.

In 2012, Japan's crude imports from Iran were made possible only by the introduction of a new supplementary insurance framework set up by the Japanese government to get around the EU ban on protection and indemnity cover for tankers carrying Iranian oil.

Japan's crude imports from Iran plummeted in recent years to an average of 170,360 b/d in 2015, compared with an average of 313,480 b/d in 2011.

According to the latest official data, Japan's crude imports from Iran jumped 10.7% year-on-year and were up 10.9% month-on-month at 194,056 b/d in January.

--Takeo Kumagai,
--Edited by Jeremy Lovell,

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