New Sanctions Against Iran

Insurers targeted in Iran sanctions push
By Daniel Dombey in Washington and Paul J Davies in London
Published: September 28 2009 19:25 | Last updated: September 28 2009 19:25
The US and its allies are stepping up efforts to push through sanctions on companies that provide Iran with insurance following last week’s revelation that Tehran is building an undeclared nuclear facility.

The move could affect the business of groups such as Lloyd’s of London and Munich Re, hit Iran’s supply of refined oil and bypass the UN Security Council, where both Russia and China have signalled their misgivings about sweeping new sanctions.

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A western diplomat, referring to curbing cover for Iran, said: “It is something that would have real impact and . . . would be achievable but as one of a package of measures.”

Pieter Van Tol, a partner at Lovells, the law firm, in New York, who advises insurers, said: “The insurance/reinsurance industry in general is quite nervous because the industry is being specifically named for the first time as a target.”

The US hopes the move, being discussed in Congress and between Washington and its partners, will limit Iran’s supplies of refined oil because of the importance of insuring valuable cargoes. Tehran’s reliance on petrol imports is considered the weak point in its economy by western officials who admit there are big obstacles to sanctions focused on refined oil – not least because China has stepped up petrol sales to Iran. By contrast, the big insurers at the centre of attention in Washington are European.

Aipac, the pro-Israeli lobby group, has identified groups such as Lloyd’s and Munich Re as providing services to shipments of refined petroleum to Iran.

The London insurance market said: “Lloyd’s covers less than 10 per cent of the shipping that carries refined oil to Iran. If new sanctions were put in place, we would immediately take action to make sure underwriters were compliant.”

Munich Re said it would review any new financial and trade sanctions.

Mr Van Tol said: “Given the inherent dangers involved in shipping to that part of the world, there are definitely limits to how much shipping companies can ‘go bare’, which is what they would be doing through self-insurance.

“The Chinese insurance/reinsurance industry is not very well advanced or capitalised . . . if the big players in the market drop out, it is not realistic to think that there is enough . . . capacity to fill the void in a significant way.”

Such measures are most likely to result from talks between the US and allies in the European Union, notably Britain and France, and from legislation being considered by Congress.

Although some US officials say the UN might impose sanctions on refined oil imports if talks with Tehran this week yield little, Russia and China are wary of measures of the sort used against Iraq in the 1990s that failed to topple Saddam Hussein but caused widespread human misery.

Instead, some diplomats anticipate new UN sanctions targeting named companies and banks linked to Iran’s missile and nuclear programme, while more sweeping action takes place elsewhere.

Even last year, the US had hoped Europe would move to limit insurance groups’ business with Iran and diplomats say talks have recently intensified.

One spur has been US legislation that Howard Berman, the chairman of the House of Representatives foreign affairs committee, says he will bring forward next month.

The legislation, which has the support of 318 of 435 House members and 76 of 100 senators, would not only target companies selling refined oil directly but also “any activity that could contribute to the enhancement of Iran’s ability to import refined petroleum resources, including providing ships or shipping services . . . underwriting or otherwise providing insurance or reinsurance for such activity [and] financing or brokering”.

Such a measure might not be enforced even if enacted – similar US sanctions in the 1990s caused tensions with the EU because of their extraterritorial reach. But lawyers say that just by virtue of being discussed such initiatives can have a chilling effect on companies.