US warns shipping on Iran, North Korea risks

Iranian tanker Sanchi on fire. Credit: China transport ministry
Iranian tanker Sanchi on fire. Credit: China transport ministry

Ports and foreign shipping companies risk being left out of pocket in any incident involving an Iranian ship, the United States has warned as it steps up its efforts to enforce its sanctions against both Iran and North Korea.

That comes as it emerged officials from the US State Department and Britain’s Foreign and Commonwealth met executives, including those from marine insurers and commodity traders, in London last Friday to discuss ways of preventing illicit shipping, trade and other sanctions busting activities involving North Korea.

Presentations at the meeting showed how North Korean evaded sanctions while discussions took place over ways to detect and disrupt North Korea-linked shipping, and proactive measures to halt the provision of insurance and other services to vessels and entities that violate UN sanctions.

A raft of countries including Britain, Australia, Canada and Japan have detected and intercepted foreign and North Korean vessels involved in ship-to-ship transfers of suspected oil cargoes in the East China Sea in recent months.

“We urge all insurance providers, commodity traders, and other businesses to immediately end any and all relationships that support or facilitate the provision of refined petroleum to North Korea or other illicit North Korean shipping activities,” the State Department said after the London meeting.

Highlighting the risks with Iran, US State Department official, Brian Hook, said: “From the Suez Canal to the Strait of Malacca and all chokepoints in between, Iranian tankers are now a floating liability.”

“Countries, ports, and canal operators, and private firms should know they will be likely responsible for the costs of an accident involving a self-insured Iranian tanker,” Hook, State Department special representative for Iran, said.

“Now that our sanctions on the Iranian regime have been reimposed, we want to alert nations of the risk of doing business with Iran’s shipping sector. If Iranian tankers make calls to your ports or transit through your waterways, this comes at great risk,” Hook said.

Senior P&I club executives confirmed Hook’s comments pointing out to IHS Markit on Tuesday payments in US dollars were already frozen after the US reimposed sanctions on Iran on 5 November.

“Banks would be reluctant to facilitate payments in other currencies, like Euros, because the risk of falling foul of the US would be too great,” said one senior P&I club executive in Hong Kong.

Another P&I executive said while Iran might be willing to settle any pollution claim under its self-insurance initiative in practice it could be extremely difficult to the payment to be made.

When sanctions were previously imposed, Iran offered countries including India, Japan and China, to self-insure tankers operated by the National Iranian Tanker Company so Iran could continue to supply crude.

After sanctions were partially lifted in 2016 the International Group of P&I Clubs set up a fall-back insurance scheme, a move that gave foreign tanker owners, like Greek operator Dynacom Tankers Management, the opportunity to lift Iranian crude. This was further enhanced last year when the International Group created a reinsurance scheme without using US-domiciled reinsurers.

But the reimposition of sanctions has mean these initatives have ended, P&I club sources said.

Hook highlighted NITC’s Suezmax tanker Sanchi which sank in January with the loss of 32 crew after colliding with the Hong Kong-flagged bulk carrier, CF Crystal, in the East China Sea.

“As the cleanup continues, the liability for this will be in the hundreds of millions of dollars. Iranian insurance companies only covered a small portion of that vessel’s liability. The majority of the tanker’s value is covered by international insurers,”Hook said.

“Now that our sanctions are back in place, these international insurers will no longer be in the risky business of covering Iran’s tankers. Self-insured Iranian tankers are a risk to the ports that permit them to dock, the canals that allow them to transit, and the boats that cross their path. This exposes the entire maritime shipping network to immense liability. If entities continue to do business with Iran’s tankers, they may assume that Iranian insurers can and will absorb the full liability associated with the accident. This is a fantasy. There is little to gain by taking on so much risk for so little return,” Hook added.

“Just as concerning, entities who allow self-insured Iranian tankers to transit through their canals or dock in their ports may be facilitating Iran’s illicit activity,” Hook said.

He pointed out NITC will use Iranian insurance providers such as Kish P&I. “Should there be an accident involving an Iranian tanker, there is simply no way these Iranian insurance companies can cover the loss,” Hook said.