Domestic refineries owned by oil companies have suddenly found themselves in a bind as global reinsurance giants have refused to provide cover for refineries processing Iranian crude oil.
The reinsurers have resorted to such a step in the wake of sanctions imposed by the US and European Union. Indian insurance companies alone cannot provide insurance cover for refineries as they fall under high risk category and need substantial reinsurance support.
But most of the reinsurance companies which provide reinsurance support to Indian companies are complying with US fiat on sanctions against Iran. Recently, GIC Re, the country’s sole reinsurer had intimated to the general insurers about the situation where any Indian refineries processing Iranian crude cannot recover any claims from the reinsurers.
“We had recently received a request from MRPL for a cover for their SPM on discharge of Iranian crude. Consequently, a meeting was arranged in our office of officers from the four public sector undertakings and the cover discussed. During the deliberations it emerged that apparently the refinery processing Iranian crude would also be out of the ambit of any cover and losses would not be payable by the reinsures on the protection programme of the companies,” said a communication from GIC Re’s chairman AK Roy to the General Insurance Council. .
“It also dawned on the insurers that this fact had not been made clear to them that they were uncovered while processing Iranian crude owing to the sanctions clause. It is therefore felt that the General Insurance Council should organise for a discussion of the insurers to identify the issues involved and attempt to find out possible solutions,” the communication said.
The general insurers are hopeful that some solution can be found out. Otherwise, it will create a severe operational problem for the oil refineries.
“Indian insurers can’t even think of doing it on their own as plants are expensive. They need to go in for reinsurance to hedge their risk. Reinsurers are refusing to give cover to Indian refineries using Iranian oil. We’re negotiating with them as India has cut down oil imports from Iran,” said a top insurance sector source.
As per recent reports, India, which used to be Iran’s second biggest oil client, has proposed to cut oil imports from Iran by 10 to 15 per cent in the next fiscal, and more if Tehran does not lower prices to help cover higher costs resulting from Western sanctions.