The government is considering legislation that will allow it to effectively reinsure tankers carrying crude oil from Iran to Japan, sources said.
The legislation, if enacted, will allow Japan to continue importing oil from Iran even after the European Union bans the region’s insurers from underwriting reinsurance covering tankers carrying Iranian oil as new sanctions against the Middle Eastern country’s nuclear program come into force, the sources said.
Tankers are required to have insurance to cover costs stemming from accidents such as oil leaks and collisions.
Japanese shipping companies with tankers belong to the Japan Ship Owners’ Mutual Protection & Indemnity Association, or JPI. The association pays up to $8 million per accident under its own insurance policy. It also has contracts with reinsurers that cover up to $7.6 billion in additional damages payment by ship owners if the payment amount exceeds the $8 million ceiling.
But because most JPI reinsurance underwriters are European, the planned EU sanctions could make Japanese oil tanker owners liable for paying out huge amounts of damages due to any oil spill accident, which could swell to hundreds of billions of yen per accident.