Sanctions loom but analysts suggest a modest impact
In approximately two weeks, the European Union will enact sanctions against Iran that will ban insurance companies from providing coverage for ships carrying oil that was produced in the country. The sanctions have proven to be a controversial topic for many countries that rely heavily on the oil produced in Iran. They have also managed to catch the ire of the shipping insurance industry, 95% of which is based in the United Kingdom. Insurers and politicians have argued that the sanctions will have a negative impact on the global economy as the insurance ban is expected to drive up the price of oil. New analysis suggests that this is not the case, however.
Analysts claim that the insurance ban could have marginal effects on the oil market
The analysis comes from Reuters. The news organization conducted a poll, looking for analysts from companies such as Citigroup and Brent Crude Oil to weigh in on the issue. When the sanctions were first announced, analysts had expected that the ramifications of banning shipping insurance for vessels carrying Iran-produced oil would be profound. As time went on, however, countries outside of the EU began to express their disdain for the sanctions. Japan, India, and China have been the most vocal regarding their need for a reliable source of oil that can be protected by the shipping insurance industry. In the United Kingdom, home to the majority of the world’s shipping insurance industry, politicians and insurers have been petitioning EU leaders to reconsider the insurance ban as well.
Price of oil continues to drop
According to the analysts polled by Reuters, the impact of the shipping insurance ban could be marginal. Analysts with Brent Crude note that the price of oil has been dropping steadily since early 2011, long before the sanctions were announced. Despite the impending enactment of the sanctions, the price for oil remains stable.
Iranian companies may be able to insure themselves
There is a strong possibility that shipping companies and oil producers may take on a form of self-insurance. Iran’s NITIC, the largest tanker operator in the region, claims that it can insure its fleet of 39 vessels with $1 billion in shipping insurance. This would allow fuel to reach countries like Japan and China without these countries having to concern themselves with any significant financial losses.