TOKYO (Reuters) - Japan’s lower house is set to pass a bill on Friday to provide government guarantees on insurance for Iranian crude cargoes, making it the first of Iran’s big Asian buyers to find a way to keep the oil flowing in the face of tough new EU sanctions.
A European Union ban on member countries importing Iranian oil takes effect on July 1 and includes a ban on EU insurance firms from covering Iran’s exports. That is a headache for Japan, South Korea, China and India, who together buy two thirds of Iran’s oil exports and rely on EU companies to insure them.
EU and U.S. sanctions aim to cut the oil revenues on which Tehran depends to force the Islamic Republic to curb its nuclear programme. The West suspects Iran aims to develop weapons, while Tehran says it needs reactors for electricity supplies.
Japan’s special insurance bill is expected to go through the upper house and become law before the parliamentary session ends on June 21, the Yomiuri newspaper reported on Thursday.
Iranian oil accounted for nearly 9 percent of Japan’s crude imports last year. Japan has reduced the flow already to comply with U.S. sanctions requiring buyers to make sizeable cuts to Iranian imports, but wants to avoid more drastic reductions that may drive up energy import costs and hurt the world’s third-largest economy.
Japan won a waiver from U.S. sanctions for those cuts, which refiners enacted even as they dealt with an increase in overall oil demand after last year’s Fukushima disaster shut down the country’s nuclear power stations.
India’s government, which won an exemption to U.S. sanctions this week, has yet to figure out how it will get around the EU sanctions.
“We are struggling to find solutions,” Oil Minister S. Jaipal Reddy told reporters in Vienna, where crude producers from OPEC are meeting. The government was studying sovereign guarantees, he added.
Without government intervention, India’s state-owned refiners will halt 173,000 barrels per day (bpd) of planned imports from Iran in July, industry sources said this week.
Iran’s top buyer China has yet to detail how it plans to resolve the insurance problem, but industry sources there have said they will find a way to keep imports flowing.
South Korea will reduce imports to zero in July due to the insurance ban, industry sources have said. Seoul, like Tokyo, has lobbied the EU to cancel or delay implementing the ban on insurers, but is not considering state guarantees, according to government sources there.
Those lobbying efforts have so far failed. The European Union will not cancel or delay the embargo on Iranian oil tankers, EU Energy Commissioner Guenther Oettinger said at an industry conference on Wednesday.
The International Energy Agency said on Tuesday that Iran’s crude exports in April and May have fallen by 1 million bpd since the end of 2011 to 1.5 million bpd and that Tehran may need to shut in production.
China, Japan, India and South Korea have cut purchases by about a fifth from the 1.45 million bpd they were buying a year ago ahead of the imposition of the sanctions.
Tehran has denied it is experiencing problems with oil sales despite mounting evidence its major customers, including China, are turning down offers of cheap crude.
The Japanese government wants to make the bill law this month to provide protection coverage of up to $7.6 billion per tanker carrying Iranian crude bound for Japan.
It is the first time Japan has sought to provide guarantees on marine shipments, said an official in the country’s transport ministry, which is sponsoring the legislation. The official, who helped draft the bill, said he didn’t know when the law will be passed by parliament.
The biggest opposition party, the Liberal Democratic Party, and its former partner, the New Komeito, have backed the bill, the Yomiuri report said.
The support of the main opposition parties clears a hurdle for the bill’s passage through the legislature. Although the lower house is controlled by the ruling Democratic Party, the opposition has the majority of the upper house.
Editing by Aaron Sheldrick and Simon Webb