New sanctions on Iran will impact shipping
The threat of fresh sanctions on Iran will hurt shipping activity to and from the country while also hampering the it's ability to export its crude oil. Iran analyst Meir Javedanfar said international shipping flows were vital for the Iranian economy. The United States is pushing for a fourth round of United Nations (UN) sanctions on Tehran over its refusal to halt sensitive atomic work the West suspects is aimed at making nuclear bombs, a charge Iran denies.
"Fresh sanctions could make the cost of imports go up which would push up inflation even further and this is the Achilles' heel of President Mahmoud Ahmadinejad's economic policies.
"The implications will be felt not just by the Iranian leadership but also by the Iranian people," Javedanfar added. Iran is the world's fifth biggest crude oil exporter but previous US sanctions mean it has suffered from lack of investment in refineries, forcing the Opec (Organisation of Petroleum Exporting Countries) member to import some 40 per cent of its petroleum needs.
United States lawmakers are reviewing proposed legislation that would prevent companies who supply
petroleum to Iran from doing business with the US. Shipping transactions are done in dollars and payments go through the US.
"Shipping companies would have to be a lot more careful of where they send their ships," Philip Roche, partner in the disputes and risk management team with law firm Norton Rose, said.
"Anybody doing business with Iran would have to set up a separate structure which would have to avoid any business or connection with the US as otherwise it will fall foul of these laws." Roche said if the US legislation was passed it would make trading with Iran "risky."
"I can't see very many Greek or Italian-controlled ship owners doing that if they have business interests in the US," he said.
Russia's No 2 oil company Lukoil, Royal Dutch Shell and Malaysia's Petronas have all announced stopping petroleum sales to Iran, joining two of the world's largest independent trading companies, Glencore and Vitol, who have taken similar decisions.
"If you are a Chinese or Vietnamese ship owner that has little or nothing to do with the US, they are not going to really care as the US law will have little practical effect. That is why international sanctions agreed by the UN are required," Roche said. Draft UN proposals include curtailing insurance and reinsurance of cargo shipments to and from Iran and authorising the inspection and seizure of suspicious cargo transported by Iranian shipping firms.
London's marine insurance market last month added Iran to a list of areas deemed high risk. Ships transiting the area have to notify underwriters of voyages up to 12 nautical miles off Iran's coast.
"On a contractual level, what we will see is more examples of Iran being on the list of countries, along with for instance, North Korea, that the tanker in question is not permitted to call at," Norton Rose's Roche said.
J Peter Pham, senior fellow at the National Committee on American Foreign Policy think tank, said it was likely that insurance costs would rise. "The temperature is rising on the political level which should indicate to the insurance market that a rate adjustment is in order," he said.