India's largest shipping company was forced to cancel an Iranian crude oil shipment last month when European insurers refused to provide coverage for the vessel.
Suezmax tanker Maharaja Agrasen – owned by state-run Shipping Corp of India – was scheduled by refiner Indian Oil Corp to load oil in mid-February, but failed to obtain the necessary insurance coverage.
"The European Mutual Protection and Indemnity Club is covering contracts concluded before January 23 on a case-by-case basis up to July 1. They have said they cannot cover contracts finalized after January 23," a source close to the deal told the Economic Times.
"Shipping Corp concluded the fixtures and applied for a cover which was not extended by the European P&I Club," the source added, referring to a group of maritime insurers.
The Economic Times also reported that two shipbrokers confirmed the tanker cancellation.
Indian officials are now said to be weighing options, including extending sovereign loan guarantees for its shipping lines and buying Iranian oil on a delivered basis to ensure cargoes into July.
The failed contract comes after the European Union announced new sanctions in January, prohibiting European insurers from indemnifying ships that carry Iranian crude and oil products anywhere in the world. It has also enacted sanctions that bar transactions with Iran's central bank.
Europe and the United States are enforcing tougher economic sanctions in the hope of isolating Iran and forcing it to halt its nuclear program. Israel, the United States, its Western allies, and Gulf Arab states say Iran is seeking nuclear weapons.
Those allegations have been buttressed by a series of International Atomic Energy Agency (IAEA) reports expressing concern over Iran's move to enrich its uranium stockpiles to 20 percent purity, which is a key jumping off part for pushing to high-enriched 93% "weapons grade" uranium.
The UN's nuclear watchdog also reported that Iran has sought, and continues to seek, nuclear technology of a military nature while at the same time systemically denying international inspectors access to its nuclear facilities.
The forced cancellation underscores a growing problem for nations like India, who are determined to do business with Tehran despite the growing rafts of Western sanctions on Iran. At present India's transactions with Tehran are being conducted through Turkish banks.
Iran is India's second-biggest supplier of oil after Saudi Arabia, with some $11 billion a year in shipments meeting about 12 per cent of India's crude import needs.
State-run Indian Oil has a deal to buy 30,000 barrels per day of oil from NIOC in the fiscal year ending March, but cannot move the oil.
India's government has been under intense Western and Gulf Arab pressure to replace its Iranian imports from another source. Saudi Arabia, the world's fifth largest oil exporter, has offered to step in and provide the oil Iran now provides.
Iran faces a shrinking market of economically vital oil consumers who are economically influential enough to ignore Western sanctions. Losing India's oil dollars would be a serious blow to Iran's already struggling economy.