The wrangling shows the difficulty of achieving consensus on how to isolate Iran over its suspected nuclear weapons programme. Tehran denies Western charges, saying its nuclear programme is for peaceful purposes such as power generation. The EU agreed an oil embargo on January 20 to stop members from importing Iranian oil from July. The embargo also specified a ban on EU insurers and reinsurers from indemnifying vessels carrying Iranian crude and fuel anywhere in the world.
Europe's insurers cover the majority of the world's global oil tanker fleet, and the ban could prevent Iran's biggest crude buyers in Asia from importing Iranian crude. "We argue that this regulation applies too broadly as it also hits non-European companies," said a South Korean government source with direct knowledge of the matter. "We could fail to receive Iranian crude from July 1 if no solution is reached," he said.
After the January agreement, EU talks on the implementation of the ban led at first to a clause excluding certain types of insurance, according to a discussion document seen by Reuters. The document, dated February 20, said: "It shall be prohibited ... to provide, directly or indirectly, financing or financial assistance, including financial derivatives, as well as insurance and re-insurance, except for third party liability insurance and environmental liability insurance."
That exemption might have made it easier for shippers to meet Asian importers' national laws requiring insurance. But it is unclear whether such an exemption will be maintained. The exemption clause had been deleted from the discussion paper on Thursday, said the EU diplomat, but would be up for discussion again on Monday.
The presidency of the bloc - held by Denmark for the first six months of 2012 - wants an agreement on implementing the regulations before next week's meeting, said the diplomat. Rising international political tension between the West and Iran and uncertainty over how the EU embargo and US sanctions will impact oil supplies have driven up benchmark crude prices, with Brent crude up around 14 percent so far this year. Higher oil prices mean Iran is receiving a higher price for its exports, while importers such as Japan and South Korea face a rising fuel bill.
China, India, Japan and South Korea are Iran's top four oil customers, buying more than half of the Opec producer's exports of 2.6 million barrels per day. "It's possible (Friday's) meeting will end up being a place of tumult with various opinions being expressed. If a deal is not reached, it's possible talks could be extended to late April," a Japanese industry source said.
AFFECTING TRADE The sanctions are affecting oil trade, with European insurers halting tanker coverage for new contracts to ship Iranian crude oil. "Who would take such big risks if European companies do not provide insurance?" said a South Korean shipping source. "We are internally studying solutions but I don't think it is possible to find a solution unless the EU suggests another alternative." The sanctions have forced many private oil tanker companies, such as Frontline and Maersk Tanker, to stop carrying Iranian oil on their ships.
India's largest shipping company, Shipping Corp of India , was forced to cancel an Iranian crude shipment last month after its European insurers refused it coverage. The firm is in talks with domestic insurers to provide replacement cover, while the Indian government is considering offering sovereign guarantees.
"If the oil is important enough, what you will find in this situation is the states stepping in to provide the reinsurance and liability insurance cover," said a top official with a leading maritime insurer in Asia. Although Japan, China and other Asian maritime insurers do not fall under the sanctions, they are exposed due to their dependence on Europe's reinsurance market, where they need to hedge their risk.