Orlando Harmon
The National Iranian Tanker Company (NITC) is a subsidiary of the National Iranian Oil Company (NIOC), which was privatized in 2009. NITC is the largest tanker company in the Middle East, transporting Iranian crude oil to export markets. In 2018, the United States re-imposed sanctions on Iran, leading to uncertainty about insurance for Iranian oil shipments. Chinese buyers of Iranian oil began using NITC vessels, with Iran covering all costs and risks, including insurance. The insurance typically covers the oil cargoes, third-party liability, and pollution. Marine insurance generally includes coverage for damage to ships or vessels and their cargo while on the ocean or inland waters.
| Characteristics | Values |
|---|---|
| Type of insurance | Marine insurance |
| Insurance provider | Unclear, likely Iran |
| Insured goods | Oil cargoes, third-party liability, pollution |
| Insurance cost | $1.5 billion a month |
| Insurance period | One year |
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What You'll Learn
The National Iranian Tanker Company (NITC)
As of 2010, NITC operated 28 Very Large Crude Carriers (VLCCs), nine Suezmax, and five Aframax tankers. It also owned three chemical vessels and a liquefied petroleum gas (LPG) carrier. By January 2011, NITC had expanded its fleet to 46 tankers with an annual capacity of 10.6 million tons, which was expected to increase to 12.5 million tons by the end of the year.
In 2012, NITC had 40 tankers ranging from 100,000 to 300,000 tons in capacity. However, they lacked the long-distance capacity for more than 2 million barrels (300,000 tons) per day in exports. To address this, NITC embarked on a significant project for replacing and expanding its tanker fleet. This included the construction and purchase of 25 new tankers with a total capacity of 6 million tons. As part of this effort, Iran and South Korea's Daewoo signed a $128 million contract for tanker supply, with the ability to carry 2.1 million barrels of crude. NITC also ordered 16 additional oil tankers that were set to join its fleet by 2011.
By 2013, NITC expected to have a diverse fleet of 74 ships of various sizes, including VLCCs and smaller vessels. They planned to operate 50 VLCCs, a significant increase from their previous numbers. As of 2015, Iran possessed 42 VLCCs, each capable of carrying 2 million barrels of oil.
In terms of insurance for NITC vessels, there was uncertainty in 2018 when the Trump administration reimposed sanctions on Iran. At that time, China shifted its petroleum cargo to NITC ships, and it was unclear which entities would provide insurance for these shipments worth $1.5 billion per month. Zhuhai Zhenrong Corp and Sinopec Group activated a business clause in their long-term supply agreement with NIOC, suggesting that Iran might cover all costs and risks, including insurance, for the delivery of crude.
While I cannot confirm the current insurance status of NITC vessels, it appears that there have been periods where the insurance arrangements were unclear due to shifting geopolitical factors and sanctions.
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Marine insurance
The history of marine insurance can be traced back to ancient times, with the Lex Rhodia, or Rhodian law, established on the island of Rhodes around 1000 to 800 BC, articulating the general average principle of marine insurance. Separate marine insurance contracts were developed in Italian cities in the 14th century and later spread to northern Europe. In the 19th century, Lloyd's of London and the Institute of London Underwriters developed standardized clauses for marine insurance, which are still used today.
Today, marine insurance is provided by specialized agencies and large insurance companies such as AIG and Chubb. These companies offer a range of commercial coverage options and risk management services for businesses operating in the marine industry, including shipowners, transporters, manufacturers, and marine facility owners. They also provide global coverage and customized solutions to meet the unique needs of their clients.
Regarding the National Iranian Oil Company (NIOC), it is not explicitly stated whether their vessels are insured. However, it is known that the company is a subsidiary of the National Iranian Tanker Company (NITC), which is owned by funds managing pensions for 5 million Iranians as of 2011. NITC is the largest tanker company in the Middle East and generates significant revenue from its operations. While the insurance coverage of NIOC vessels is not specified, it is likely that they would require marine insurance to protect against the risks associated with the transportation of crude oil and other petroleum products.
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Ocean and inland marine insurance
Ocean marine insurance is one of the oldest forms of insurance, protecting cargo and vessels in transit across oceans and inland waterways. It covers physical damage to ships and their equipment, as well as loss or damage to goods during overseas transportation. This insurance also extends to liabilities that vessel owners may face, such as medical bills, legal expenses, and collision damage costs. For example, if a ship collides with another vessel, the insurance can help cover the expenses arising from such an incident.
Inland marine insurance, on the other hand, focuses on protecting goods and equipment in transit over land or stored at various locations. This type of insurance is particularly relevant for businesses that transport products by road or rail. Inland marine insurance covers movable property, including tools, equipment, building materials, and high-value items that may not be adequately covered by standard property insurance policies. It offers broader protection than traditional property insurance, ensuring that businesses are covered against losses even when their goods or equipment are not at their premises.
Inland marine insurance also includes coverage for property stored off-site, such as in warehouses or storage facilities, as well as property kept in movable vehicles like food trucks. Additionally, it can cover property lent to others, such as specialty equipment used in contracting work. This type of insurance is designed to meet the specific needs of businesses that operate across different job sites and require protection for their tools and equipment while on the move.
The distinction between ocean and inland marine insurance lies primarily in the mode of transportation and the nature of the goods being covered. While ocean marine insurance focuses on sea transportation, inland marine insurance evolved to address the protection needs of goods and equipment transported over land or stored at diverse locations. Businesses should assess their specific risks and choose the appropriate insurance policy to ensure their assets, goods, equipment, and finances are adequately protected.
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Insurance cover for NIOC shipments to China
In May 2018, when the Trump administration re-imposed sanctions against Iran after the US withdrawal from the JCPOA, China shifted its petroleum cargo to ships owned by the National Iranian Tanker Company (NITC), a subsidiary of the National Iranian Oil Company (NIOC), to maintain or increase its imports from Iran. It was initially unclear which entities would provide insurance for those shipments worth $1.5 billion a month. Zhuhai Zhenrong Corp and Sinopec Group activated a business clause in their long-term supply agreement with NIOC, suggesting that Iran would cover all costs and risks, including insurance, for the delivery of crude oil.
It is essential to insure cargo to protect a business's supply chain and safeguard against potential financial losses. China freight insurance is an inexpensive strategy to protect against catastrophe and covers theft, damage during transit, rough handling, exposure to the elements, and vessel accidents. The cost of insurance depends on the type of policy requested, with insurance agents calculating the value of the shipment and taking a small percentage of the total cost. Basic plans can be very affordable, while policies requiring more coverage or riskier cargo may receive quotations in the low single-digit percentiles.
When choosing an insurance policy for shipments from China, it is crucial to consider INCOTERMS and policy coverage. Freight leaving China is often insured by Ping'an and China Pacific Insurance Company, the largest insurers in the country. While the insurance covers the cost of the cargo, it does not cover the assumed sales value. Additionally, ocean freight insurance typically covers 100% of the insured invoice value, plus an additional 10%. This policy protects against "all risks" of physical loss or damage from any external cause.
It is recommended to insure cargo for 110% of the CIF (Cost, Insurance, and Freight) value to account for unforeseen expenses. The insurance amount is calculated by multiplying the CIF invoice price by 110%, and the premium is then determined based on the agreed rate. Insurance rates can vary between 0.08% and 0.3%, depending on factors such as cargo type, voyage, packaging, and others. Separate insurance is required for each individual shipment, while monthly and annual orders have different premium structures.
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NIOC insurance amid sanctions
The National Iranian Oil Company (NIOC) and its subsidiary, the National Iranian Tanker Company (NITC), have been subject to sanctions by the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC). These sanctions were imposed in 2020 due to their financial support for Iran's Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), designated as a terrorist entity. Senior personnel from NIOC and NITC have worked closely with IRGC-QF officials to facilitate shipments of oil and petroleum products, benefiting the IRGC-QF financially.
Despite these sanctions, certain humanitarian trade transactions involving NIOC or entities in which it owns a 50% or greater interest have been allowed to continue. This exception was made through an amended General License 8A, issued by OFAC under the Global Terrorism Sanctions Regulations and Iranian Transactions and Sanctions Regulations.
Regarding insurance, there is no clear information specifically about NIOC vessels. However, in the context of the broader sanctions, it is possible that NIOC and its assets, including vessels, face challenges in obtaining insurance coverage. Sanctions can often lead to difficulties in accessing certain financial services, and insurance is no exception. It is likely that Western insurance companies would be hesitant to provide coverage for NIOC vessels due to the legal and reputational risks associated with sanctioned entities.
That being said, Iran has demonstrated its ability to adapt and find alternative solutions. For example, when the Trump administration reimposed sanctions in 2018, China maintained its imports from Iran by shifting its petroleum cargo to NITC ships. In this case, it was unclear which entities would provide insurance for these shipments, worth $1.5 billion per month. Iran has also shown a willingness to cover all costs and risks, including insurance, as evident in its agreements with Zhuhai Zhenrong Corp and Sinopec Group.
To comply with sanctions and mitigate potential risks, insurance providers typically avoid sanctioned entities. However, the specific insurance status of NIOC vessels may not be publicly available or may involve complex arrangements that are not easily discernible. It is possible that NIOC has sought insurance coverage from alternative sources, including domestic or non-Western insurance providers, or even self-insurance, where they retain the risk themselves.
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Frequently asked questions
Yes, NIOC vessels are insured. The National Iranian Oil Company (NIOC) is a subsidiary of the National Iranian Tanker Company (NITC), the biggest tanker company in the Middle East. NITC provides insurance for its tankers, which transport Iranian crude oil to export markets.
Insurance for NIOC vessels typically covers the oil cargoes, third-party liability, and pollution. Insurance of the vessels is generally known as "Hull and Machinery" (H&M) and covers damage to ships or vessels and the goods they carry while on the ocean or inland waters.
NITC operates its own insurance for its vessels and the cargo they carry. In addition, Iran has also covered all the costs and risks of delivering crude, as well as handling the insurance for Chinese oil purchases.
