The money reserved will be used to cover the refineries that are processing crude from the Middle Eastern nation.
India has announced that it is going to try to solve its own oil insurance problems by creating a fund that will be worth approximately $364 million (20 billion rupees) to provide coverage for the refiners that will be using Iranian crude.
The crude from Iran is subject to sanctions from the West, such as the European Union, that has banned coverage.
The E.U. has placed a ban on providing oil insurance or reinsurance on product that is exported from Iran. This has made it challenging for refiners in India, who cannot continue their production without coverage. This is because the E.U. had been providing approximately 90 percent of the reinsurance coverage for these companies.
For a while, it looked as though India would no longer be able to import Iranian crude over a lack of available oil insurance coverage.
However, they are now hoping that they will be able to keep the refineries working with crude from the Persian Gulf nation through their own fund. India is the second largest importer of Iranian crude and is highly dependent on the tankers that it receives for the fuel used by much of the country.
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General Insurance Co. in India will be managing the oil insurance fund. This will begin as the refiners begin to add their financial contributions to the fund. This, according to Rajiv Takru, the Banking Secretary. He also added, from his announcement in New Delhi, that this fund will not have the state’s guarantee.
Should the fund be unsuccessful, or not as successful as is required for the amount of oil insurance that is needed, then the refiners in India may still be forced to cease production of crude from Iran. They will need to make certain that the fund will provide adequate coverage for the risks that will be associated with using the oil. This statement was made by the Mangalore Refinery & Petrochemicals Ltd. managing director, P.P. Upadhya.
The oil insurance sanctions have been in place by the United States and the European Union since July 2012 as an effort to put pressure on Iran to cease its nuclear program.