Relaxed Iranian sanctions: opportunities and barriers to marine insurance
The opening up of trade is likely to see an increased demand for marine cargo, hull, liability and P&I cover for Iranian risks, as well as shipments to and from Iran (especially oil exports). By virtue of the Joint Comprehensive Plan of Action (JCPOA), insurers will now be allowed to write risks in Iran’s trade, marine and energy sectors, other than in respect of designated persons or entities who are still subject to sanctions. However, because of the convoluted and overlapping nature of the sanctions regime, barriers remain and a cautious approach to this re-emerging market seems to be the order of the day.
For an overview of the changes to Iranian sanctions, please see: Lifting Iranian sanctions: a general and aviation insurance perspective
Scope of sanctions
While the EU lifted the majority of its sanctions, the US did so only for nuclear-related secondary sanctions against non-US persons, issuing a limited licence to permit foreign subsidiaries of US companies to conduct specified activities with Iran.
Of specific relevance to the marine and energy sectors, the import, storage, transport and export of Iranian oil, gas and petrochemicals is permitted; as is investment in and technical support for that industry. Restrictions on activities in the shipping, shipbuilding, ports and terminals and cargo sectors have been lifted. Many entities have been delisted.
In respect of insurance, permitted activities now include “the provision of insurance, re-insurance and underwriting services in connection with activities that are consistent with the JCPOA”. JCPOA compliance means that an insurance transaction must not involve (i) persons on the Specially Designated Nationals (SDN) and Foreign Sanctions Evaders (FSE) list or (ii) conduct that involves prescribed matters such human rights and terrorism (as listed in JCPOA).
Marine and energy insurance covering permitted trade with Iran and in Iranian-origin goods is allowed, so that in theory, cover can be offered by UK or EU subsidiaries of US insurers to energy companies, cargo owners, ship owners, forwarders and port authorities.
Issues and concerns
While there is appetite in the market to participate in Iranian business, many barriers remain for the marine and energy sectors.
The relaxation of certain United Nations (UN) Security Council, multilateral and national sanctions against Iran should begin to offer the global insurance markets the opportunity to help rebuild Iran’s economy - particularly in the marine and energy sectors.
The primary US sanctions have not (yet) been lifted. US nationals and US companies are still prohibited from doing business in Iran, which in practice means businesses with a US connection may still not be able to trade with Iran. US insurers and reinsurers will be unable to receive premium or pay claims on Iran-related risks, which affects the availability of reinsurance to UK and EU subsidiaries which might otherwise want to write such business.
Restrictions on the export and re-export of US origin goods, technology and services to Iran remain. It continues to be essential to verify the origin of products and components in those products.
One very real practical barrier for all markets is the widespread use of the US dollar in international trade and insurance. All US dollar transactions must be cleared through a US bank. Primary sanctions still apply to US banks, and to dollar transactions.
It is necessary for companies and insurers to continue to carry out the same due diligence checks, in particular to ensure that insureds, Iranian counterparties and others involved in any transaction (such as ports or agents) are not on the designated lists. The degree of control a prohibited entity may have over any Iranian company is often difficult to verify.
The previous sanctions regime has caused major problems and additional costs for parties and their insurers involved in casualties in or near Iranian waters, for example, where Office of Foreign Control approvals were needed to be obtained in order to effect salvage operations. Depending on the circumstances of each case, such approvals may continue to be required.
In light of the “snap back” provisions, sanctions clauses in marine insurance policies will continue to be necessary, and those drafting shipping/trade contracts should also consider including similar provisions to deal with this risk.
The experience since the easing of sanctions in January 2016 suggests that a cautious approach is being adopted both by the shipping industry and by UK and EU insurers, not least perhaps with an eye to the US Presidential elections in 2017. Significant hurdles still need to be overcome to do business with Iran. Many feel the risks currently outweigh the potential rewards. This continues to give a commercial advantage to traders and marine and energy insurers in the Middle East and Asia without a significant US connection.
Related item: Lifting Iranian sanctions: a general and aviation insurance perspective