New and harsher sanctions imposed by the European Union in July over Iran have spurred insurers themselves to interpret the rules more strictly rather than risk falling afoul of regulators. Two European insurers have therefore ceased to provide coverage for oil tankers that were used to store, rather than transport, Iranian oil.
Reuters reported Friday that this is the first such action since the new sanctions went into effect. EU sanctions prohibit Western based insurers from covering ships that carry Iranian oil. However, it had been revealed earlier that tankers operated by the shipping and oil storage company Titan Petrochemicals Group of Hong Kong were being used to store Iranian oil for the oil trader Vitol and the shipping firm Glammarine.
Titan’s main insurer, which has withdrawn coverage for Titan, was the North of England P&I Association. Mike Salthouse, director of North Insurance Management, had been quoted saying on behalf of the association in September that "Titan's conduct breaches the spirit if not the wording of U.S. and EU sanctions against Iran."
He continued, "Were the association to continue to provide insurance to the Titan fleet, we have concluded that there would be a high probability of further breaches of sanctions."
Titan lost Gard, its other insurer and the second-largest marine insurer in the world, in September. Gard had provided coverage for one of Titan’s floating oil storage vessels.
Titan, which operates a floating storage business off Malaysia that is one of the largest in Southeast Asia, now has to look elsewhere for coverage so that it can continue to operate—a task that could prove difficult. Western-based insurers cover approximately 90% of the world’s tanker fleet. Should the rest of them also decide not to provide coverage for Titan, things could get even rougher for a company already beset by problems.
While its floating oil storage business brought in over $64 million in revenue in 2011, which amounts to about a fifth of the company’s total revenue, and it hires the floating storage vessels under long-term contracts with independent shipowners such as Norway's Frontline, Frontline pulled its charter for at least one of Titan’s fleet because the ship was involved in the Iranian oil trade.
The company also carries a lot of debt and is in the process of being sold to Chinese oil trader Guangdong Zhenrong Energy Co Ltd. Guangdong’s parent, Zhuhai Zhenrong, is blacklisted by the U.S. as the biggest supplier of refined petroleum products to Iran.
Titan is also embroiled in a legal fight with Warburg Pincus, which owns about 10% of the company. Warburg has sunk $215 million into Titan since 2007 but the investment has not paid off; the buyout firm has filed a petition to wind up the company through the Bermuda courts.