Shippers warned to take heed of sanctions-related insurance concerns

The trade sanctions on Iran have put serious pressures on SA’s oil supplies, and could cause possibly costly problems for SA traders. SA has already been forced to take heed of the US sanctions threat on countries buying oil from Iran, and Iran is currently SA’s source for about a quarter of its oil. This pressure has already seen deputy president, Kgalema Motlanthe, saying that the government is looking to Nigeria for purchase of its crude oil, and has signed a memorandum of understanding (MOU) with Nigerian vicepresident Namadi Sambo indicating that, following the uncertainty of supply of oil from Iran, Nigeria’s oil was part of the options available. Although it doesn’t prove that Pretoria is cutting shipments to avoid looming US sanctions, SA’s crude oil imports from Iran fell by 46% in April from the previous month, according to customs data. The SA Revenue Service (Sars) said that crude imports from Iran fell to R1.8 billion from R3.37 bn in March. The current situation is that SA imported a total of 1.216 million tonnes of crude in April – with imports from Saudi Arabia nearly doubling to 671 419t, and with 258 184t coming from Nigeria, and the remaining 286 072t coming from Iran. An energy ministry official said this month that SA was holding talks with the US, EU and Iran about reducing its purchases and was “confident” a deal could be struck to avert US sanctions, according to a Reuters report. On the general trade side, Mike Brews, chief operating officer at Associated Marine, told FTW that it was extremely important for shippers to keep current on sanctions laws. “If you are exporting to a country where sanctions apply,” he added, “your insurance could be null and void in the case of a mishap along the way.” This was confirmed by Carol Holness, associate at lawyers, Norton Rose, who has conducted a detailed study of the Iran sanctions problem for FTW. “The United Nations Security Council Resolution 1929 (2010),” she said, “requires UN member states to monitor, inspect, restrict, dispose of and report the shipment of certain prohibited cargo to or from Iran.” The sanctions, Holness added, include the prevention of the provision of financial services, including insurance or re-insurance, where the member state has reasonable grounds to believe that the provision of such services, assets or resources could contribute to Iran’s proliferationsensitive nuclear activities or amount to a breach of the UN sanctions. Effectively, SA – as a member of the UN – is obliged to give effect to its international obligations to enforce sanctions against Iran. “However, to date,” said Holness, “SA has not given effect to the UN sanctions in its domestic law. “Accordingly, it is currently not unlawful for an SA company to ship cargo to or from Iran.” However, there is a hitch. “A company that does so (trades with Iran), or an insurer who insures such shipments, may fall foul of the extra-territorial effects of sanctions imposed by other countries,” Holness said. “The European Union (EU) and US have stringent sanctions in place which give effect to (and arguably go well beyond) the scope of the UN sanctions.” And these EU and US sanctions may affect SA businesses which trade with Iran, if the SA entities have any links with the US or EU. “For example,” said Holness, “if they have branches or are registered in the EU or US. And SA insurers who reinsure through the European market may also risk breaching the terms of their reinsurance if they insure shipments to or from Iran.” One of the latest developments in the US sanctions was the signing into force of the National Defence Authorisation Act for Fiscal Year 2012 which aims to reduce Iranian oil revenues. It is also to discourage transactions with the Central Bank of Iran (CBI) by providing for sanctions on foreign financial institutions that knowingly conduct or facilitate certain significant financial transactions with the CBI. “The US has also threatened to penalise countries, including SA, which do not significantly reduce their importation of crude oil from Iran by sanctioning financial institutions based in those countries,” Holness said. “SA has not yet indicated how it intends responding to the US’s threat of sanctions.” So, given that SA has not given effect to the UN sanctions, there is nothing to prevent an SA importer or exporter from trading with Iran and insuring his goods in SA – unless, of course, the local insurer has specifically excluded shipments to and from Iran in its policy. “The insurer may, however, be prevented from providing cover in terms of its connections into the American and European insurance markets and the sanctions imposed there,” Holness added, “and, to that extent, they may have to give suitable notice to their clients.”