India may be able to increase Iranian crude import if General Insurance Corporation of India’s (GIC Re) plans to make foreign reinsurers provide reinsurance cover to oil refineries succeeds.
The state-owned GIC Re, India’s only reinsurer, a few days back has written to foreign re-insurers to provide cover to oil refineries as processing Iranian crude is incidental to main activity of refineries.
GIC Re said that foreign reinsurers should not have issues in covering the oil refineries since processing of Iranian crude is incidental to the main activity of refineries. The crude is processed in small quantities so should be allowed for reinsurance support.
Due to the economic sanctions by the U. S. A. and the European Union on Iran, the provisions of services related to insurance or reinsurance of crude oil cargoes originating from Iran were impacted.
Domestic insurance companies have been refusing to provide insurance cover to refineries processing Iranian crude oil as foreign reinsurers do not want to reinsure these risks. A reinsurance company provides insurance cover to an insurance company.
Under the US and European sanctions, foreign reinsurers provides reinsurance support with a ‘sanction limitation clause’ which limits the amount to be paid in case a claim arises.
The ministry of external affairs had sought opinion of the European union while Essar Oil had sought opinion from the Queen’s Counsels on the ‘sanction limitation clause’. Foreign reinsurers had written to GIC Re stating that when processing Iranian crude, the ‘sanction clause’ would apply.
The government has proposed to set up an Indian Energy Insurance Pool to provide insurance cover to oil companies processing Iranian crude. The four state-owned general insurers –National Insurance, New India Assurance, Oriental Insurance and United India Insurance along with GIC Re will commit Rs 1,000 crores for the pool while remaining Rs 1,000 crores would be contributed by the oil industry.
However, oil companies have said that the pool would not be sufficient to cover all the risks and in turn had sought sovereign guarantee from the government for import of crude oil from Iran.
However, GIC Re had said that in the last ten years, there have not been any major losses in the energy market exceeding Rs 500 crores and therefore Rs 2,000 crores capacity is a good amount to start the oil pool for providing support to domestic refiners processing Iranian crude in a situation where no other alternative exists.
