A deal struck last weekend between Iran and six world powers over Tehran's nuclear programme leaves U.S. and European oil sanctions in place for six months. Iran secured limited relief including an easing of a ban on European ship insurance, which could allow the transport of some oil to its Asian customers.
European Union sanctions last year cut out Iran's oil trade from Europe's so-called Protection and Indemnity (P&I) clubs, which cover most of the global tanker market.
"Although this agreement suggests an improvement in relations, a formal change in EU, UK and U.S. laws will be needed to release insurers from existing prohibitions," a spokesman for ship insurer UK P&I Club said.
"Until such changes are made, the effect of sanctions on Club cover remains unchanged," he added.
Specialist P&I insurers, mutually owned by shipping lines, dominate the market for insuring ocean-going vessels against pollution and injury claims, the biggest costs when a tanker sinks. Vessels transporting Iranian crude have been left with limited alternatives, mostly set up by importers.
EU officials said earlier this week the bloc could relax some sanctions on Iran as early as next month, although the timing would depend on how long the legislative process takes. In the meantime, ship insurers remained cautious about any change while they awaited guidelines on the pledged relief.
"The devil is in the details, and we will have to look very carefully at what comes out and what we can and can't do," said Mike Salthouse, director of North Insurance Management, which manages the North P&I Club.
"I suspect unless they target or relax some of the currency transfer restrictions and restrictions on payments of SDNs, (designated entities and individuals), there are still going to be a lot of operational problems in trading with Iran."
Trade sanctions have slashed Iran's oil exports by more than half from prior levels of about 2.2 million barrels per day, costing it billions of dollars a month in lost revenue. Washington has said it will not allow exports to rise above current sanctioned levels.
SITTING ON THE FENCE
Iran's big oil customers such as India and South Korea, on top of cutting purchases to get waivers from U.S. sanctions, have struggled to import even their permitted volumes, however, because they have been unable to get European insurance cover.
"The U.S. has put a lot of pressure on insurers to do as little as possible with Iran. The biggest problem has been that an increasing number of insurers have U.S. capital, and they are terrified of sanctions," Andrew Bathurst, an independent insurance broker, said.
"Because of the uncertainty, however well the Americans think they have defined it, you will be a very brave CEO if you allow an insurance company to underwrite Iranian business, so insurers will sit on the fence."
Sorting out the legal changes to ease the insurance sanctions will not be easy.
"It's going to be uniquely complicated to lift EU sanctions on the carriage of Iranian crude by reference to limits permitted by the U.S., because the two sets of legislation do not presently cross-refer to each other," Patrick Murphy with law firm Clyde & Co said.
"More likely is some sort of licensing regime where the EU licences the insurance of specific oil shipments where those shipments have effectively been permitted by the U.S," he added.
Government and industry sources said this week that for now Japanese buyers of Iranian crude will keep using specially created Japanese shipping insurance. Sovereign-backed guarantees are seen as a temporary measure, given the possibility of claims that can amount to billions of dollars.
"We have received no information about any change in coverage", in the Japanese government's scheme, said Yasuyuki Nakamura of insurer Japan P&I Club.
On the reinsurance side as well, EU sanctions have blocked European maritime reinsurers, the mainstay of the global market, from any involvement with Iranian oil.
"Until details emerge of exactly which sanctions are being relaxed and of how that relaxation is to be implemented, then reinsurers might well adopt a 'wait and see' approach in relation to the prospects of underwriting new business in Iran," David Chadwick of law firm Mayer Brown said.
"Even if it becomes lawful to underwrite certain business, reinsurers might still opt not to, since there remains the prospect that sanctions that had been eased might be reapplied or even strengthened in the event that Iran fails to deliver on its side of the bargain."
Neil Roberts, a senior executive at the Lloyd's Market Association that represents underwriters in the Lloyd's of London insurance market, said underwriters and brokers would need to make sure they understood the parameters of changes.
"It will take some time to implement even this limited unravelling as there is such a complex regime in place that it will need to be unpicked very carefully," he said.
"Underwriters will take the normal cautious approach to these issues, because they are so complex. To the extent that trade touches on Iran, people will have to be very careful."