Iran’s decision to detain an oil tanker owned by state-run Shipping Corp. of India Ltd , allegedly for causing pollution in its waters, has created ripples in India.MT Desh Shanti, a double-hull oil tanker built in 2004, was on her way from Basra in Iraq to Visakhapatnam on India’s eastern coast carrying crude oil for state-owned refiner Hindustan Petroleum Corp. Ltd when it was directed by Iranian authorities to proceed to Bandar Abbas port in Iran.
The incident came a day after finance minister P. Chidambaram told Parliament on 12 August that the country was looking to buy more Iranian crude without breaching UN sanctions as part of measures to shore up the rupee and check a record high current account deficit.
India, the world’s fourth largest oil importer, was the second biggest customer of Iran till June 2012, when tightening UN sanctions changed India’s crude oil sourcing plans.
India imports 80% of its oil requirements, and 60% of it comes from the Gulf countries. Iran, the world’s fifth largest oil producer, has been struggling to sell its crude in the face of UN sanctions. Iraq has now overtaken Iran as the biggest supplier of crude to India. India has reduced crude purchases from Iran in the past year following Western sanctions against the Persian Gulf nation’s nuclear programme. India imported about 7.2% of its oil from Iran in the last fiscal year, down from 10.5% in the 12 months prior to that.
India has always leaned on Iran for sourcing crude because of pricing advantages and it will do everything at the political level to continue the oil diplomacy with Iran without annoying the US. That’s why India has reduced its dependence on Iran to the level where it can get a waiver from separate US sanctions involving access to that country’s financial system.
The US and the European Union are seeking to curb trade in Iranian oil on the grounds that the Persian Gulf state’s atomic research is aimed at producing weapons. The government in Tehran denies this and says the programme is for peaceful purposes. Supplies from Iran have dropped in the wake of the UN curbs as Western underwriters stopped insuring ships carrying Iran crude from 1 July 2012. A few months ago, Western insurers also stopped providing re-insurance cover to refineries processing Iranian crude.
India has been doing its bit to continue sourcing crude oil from Iran. In July 2012, state-run United India Insurance Co. Ltd launched a $50-million third-party liability cover per voyage against pollution damage, wreck removal and personal injury claims for local ships transporting Iranian crude for state-run oil refiners. The firm also agreed to extend a separate $50-million cover for hull and machinery to protect local ships against physical damage.
India also promulgated new rules for foreign ships entering India’s ports, mandating that such vessels should hold a valid third-party cover against maritime claims provided by members of the International Group of Protection and Indemnity Clubs (IG Clubs) or such other insurance company as authorized from time to time by the Indian government. Since then, India has approved 13 such non-IG Clubs, including two from Iran, for the purpose of implementing the new port entry rules.
Earlier, India accepted only the cover provided by IG Clubs, a London-based group that between the members themselves insures around 95% of the world’s tankers against claims involving pollution damage and wreck removal. Following the UN sanctions, IG Clubs stopped providing third-party liability cover to ships hauling Iranian crude.
The port entry rules also say that a foreign-registered oil, product or chemical tanker should be classed with a member of the International Association of Classification Societies (IACS), or with an organization authorized by the Indian maritime administration. IACS, a 13-member global body, certifies ships for its sea worthiness. Earlier, only ships classed with IACS members were allowed entry into India’s ports. Indian Register of Shipping is now a full-time member of the IACS.
SCI says its crude tanker was not carrying oil on 30 July, the day when the pollution incident is alleged to have happened. The ship also did not transit the location where the oil spill allegedly occurred. The ship was then on its way to Iraq to load crude but Iran detained her on the journey back to India carrying crude from Basra in Iraq.
SCI says the ship was inspected thoroughly by port state control authorities in Iraq and Iran, which didn’t find any evidence of having caused the spill but has been detained in Bandar Abbas for further inspections.
Port state control is the inspection of foreign ships at national ports to verify that the condition of the ship and its equipment comply with the requirements of international regulations and that the ship is manned and operated in compliance with these rules.
The stand-off over the detention could be resolved through an independent inspection by one of the global ship classification society and the IG Club that has insured the ship and is responsible for the payout if pollution is proved. But because of the Western sanctions, Iran cannot get the Indian ship inspected by any of the global ship classification societies because none of them will come forward to do the job for fear of flouting the sanctions.
Moreover, the ship is holding a valid third-party liability cover from an IG Club because it was carrying Iraqi crude which is outside the scope of sanctions.
The detention of a young, double-bottomed crude tanker also comes at a time when the two friendly nations are finalizing plans to develop Chabahar port in Iran with the help of Indian state-owned entities and funds.
Yes and isolate itself even further. If push comes to shove India wouldn't hesitate to show Iran its place (we have already detained an Iranian ship if am not wrong). But lets just hope it doesn't come to that and better sense prevail.
