Asia shipping unlikely to benefit from Iran sanction relief

Focus story by Arianne Perez

SINGAPORE (ICIS)–Asia Pacific shipping is unlikely to see any benefit from the extension of relief to Iran from sanctions following July’s deal between Tehran and six world powers to extend nuclear talks for a four-month period, industry sources said on Wednesday.

The talks with the six world powers – the US, France, China, Russia, Germany and the UK –  are aimed at persuading Iran to limit its nuclear programme in exchange for the complete lifting of sanctions. The new deadline for talks is November 24.

The relief from sanctions initially raised hope for an increased trade from Iran to other Asian countries, which will subsequently boost freight rates for the shipping lanes.

However, ship owners and ship brokers said that due to the risky nature of carrying Iran-origin cargoes amid reluctance of most international Protection & Indemnity (P&I) clubs to insure such cargoes, the expected impact on the current supply-demand fundamentals for the chemical shipping industry did not materialise.

The International Group of P&I Clubs had urged members to practice great caution for Iranian cargoes, even back when the sanction relief was introduced earlier this year on 20 January to 20 July.

A Club representative, who requested anonymity, explained how different states differ on interpretations on the relief from sanctions, and how it may affect the Clubs. 

While many of the Clubs are based in the EU and subject to EU sanctions law, they operate in US dollars and therefore must also observe US sanctions law.

The US has indicated that, under its interpretation of the time limits for sanctions relief, after the sanction relief period, an insurer would not be allowed to make any claims payment or provide any other benefits in respect of a trade subject to the sanctions relief, even if the claim related to an event that happened within the sanction-break period, he explained.

“So if you are a ship owner intending to carry a cargo for which there is relief from US sanctions and you have an incident and thought you were protected by insurance, you’ll have an unpleasant surprise – if the claim and losses are not settled within the [sanction break] period, you will find your insurer is not be able to cover them,” he said.

A ship broker said: “Unless Iranian sanction is completely lifted, we will see the same market dynamics in the shipping scene.”

“We get asked often to offer ships for cargos out of Iran, but we just don’t touch them,” a ship broker said.

“The main problem is the insurance side – both the EU and the US are unable to answer whether any claims that happened within in the period will be able to be sorted after the deadline,” he added.

Freight rates for 5,000 tonnes petrochemical cargoes from Saudi Arabia’s Al Jubail to India were ranging between $36-40/tonne; Al Jubail to Singapore at $46-49/tonne and Al Jubail to Chinese Main Ports (CMP) at $57-61/tonne around 21 February, a month after the relief was first introduced.

As at 25 July on the relief deadline, freight rates for 5,000-tonne cargoes from Al Jubail to India were averaging at $41-44/tonne, Al Jubail to Singapore at $51-53/tonne and Al Jubail to CMP at $62-65/tonne.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections