Japan's Cabinet is poised to approve a bill giving sovereign guarantees for the nation's oil tankers loading Iranian crude, potentially undermining Western sanctions targeting the Persian Gulf nation.
The government plans to provide as much as $7.6 billion so that ship owners and petroleum refiners can maintain insurance when hauling crude from Iran, Bloomberg quoted two Japanese officials with direct knowledge of the law as saying, adding both sources declined to be identified before the Cabinet gives consent to the legislation as soon as tomorrow.
The bill will be submitted to the Diet, or national parliament, after the Cabinet endorses it, they said.
The European Union announced a ban on Iranian oil in January that also prohibited insuring the shipments. The move affected 95 percent of the world's tankers because they were covered by organizations following EU law. A law signed by US President Barack Obama on Dec. 31 blocks countries' access to the US financial system if they can't show they're reducing oil imports from Iran. Japan and 10 European nations received exemptions in March for a renewable period of 180 days.
"If there are insurers in the Far East who can insure this without relying on Europe, then it will to some extent undermine the sanctions regime and the pressure the West is trying to put on the Iranian government to stop its nuclear ambitions," Chris Zavos, a London-based lawyer and partner at Norton Rose LLP, said by phone today.
The EU introduced the embargo against Iran to force the country to give up its nuclear rights. Washington and its Western allies accuse Iran of trying to develop nuclear weapons under the cover of a civilian nuclear program, while they have never presented any corroborative evidence to substantiate their allegations. Iran denies the charges and insists that its nuclear program is for peaceful purposes only.
Tehran stresses that the country has always pursued a civilian path to provide power to the growing number of Iranian population, whose fossil fuel would eventually run dry.
Despite the rules enshrined in the Non-Proliferation Treaty (NPT) entitling every member state, including Iran, to the right of uranium enrichment, Tehran is now under four rounds of UN Security Council sanctions for turning down West's calls to give up its right of uranium enrichment.
Japan imported 362,000 barrels a day of crude from Iran in 2010, making it the country's second-largest buyer, after China, according to data from the US Department of Energy. To comply with the European sanctions, ships carrying Iranian oil would need to unload before July 1. A very large crude carrier hauling 2 million barrels of oil would take about four weeks to reach Japan from Iran, according to the e-ships.net website.
The Japan Ship Owners' Mutual P&I Association, which insures owners against risks including spills and collisions, will lose access to Europe's reinsurance market for Iranian cargoes after the European embargo comes into effect July 1.
"For that oil to get to Japan, it needs P&I cover," Mike Roderick, a London-based partner at Clyde, said by phone today. "China, Japan and India are all looking at sovereign guarantees because they are major importers of Iranian oil."