Update: No “Geneva bump” for Iran after EU insurance ban lifted

A few weeks ago I blogged about what the six-month suspension of the EU insurance ban could mean for Iran’s oil exports. My reading of events was optimistic for Tehran. India looked like the country best positioned to increase oil imports because it was never able to develop an alternative arrangement. Imports fell dramatically as a result. Other, more marginal barrels could be headed for Turkey, officials also said. “For Iran, every barrel is significant,” I argued on January 17. But it’s looking more and more like the “Geneva bump” will not materialize.

EU-based insurers issued a series of warnings last month, calling for caution. Gard AS of Norway–the largest protection and indemnity (P&I) insurer–had this to say: “Members and clubs should proceed on the basis that beyond 20 July 2014, clubs will not be able to respond to any claims presented in respect of liabilities arising during the 20 January/20 July suspension period… This has the effect of rendering the current suspension of sanctions on insurance cover, and in particular P&I cover, of very limited, if any, value to shipowners.”

Testifying today at a Senate Foreign Relations Committee hearing, Treasury Undersecretary David S. Cohen confirmed that all insurance claims, “from contract to delivery to payment,” must be settled by July 20. P&I claims regularly take a year or more to collect, process and pay out. This is understandable given that huge amounts of money involved. However, for Iran, it means selling more oil won’t be easy. Without EU insurance, tanker owners will be left on the hook to pay for any accident, damage or disaster. We will still see month-to-month variations in Iran’s oil exports but a sustained boost is hard to imagine without EU insurance.

In my January 17 post, I also suggested China might decide to import more oil from Iran it sees P5+1 talks going in the right direction. Chinese imports climbed in the last two months of 2013 but it’s too soon to tell whether or not Beijing is really rolling the dice–and daring the U.S. Treasury to act if talks with Iran fail.

Negotiations for a comprehensive, final nuclear deal will begin on February 18.

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