UK: EU Sanctions Against Iran: An Update

Last Updated: 5 July 2012
Article by Michelle Linderman, James Rose and Jonathan Reese

This update should be read in conjunction with our previous Iran sanctions update of May 2012 at

The 1 July 2012 deadline for performing contracts relating to Iranian crude oil and petroleum products has now passed. As set out in our previous sanctions update (see above), EU Regulation 267/2012 (the "Regulation") bans the purchase, import or transport of Iranian oil and (re)insurance relating to the same. The Regulation contains a grace period in relation to Iranian crude oil and petroleum products for pre-23 January 2012 trade contracts and ancillary contracts necessary for the execution of those trade contracts. These grace periods came to an end on 1 July 2012 and, save for the limited further carve-outs set out below, that was the final date for the execution of contracts permitted in the grace periods. Furthermore, from 1 July 2012, it has become prohibited to provide third party liability and environmental cover in relation to the purchase, import or transport of Iranian crude oil and petroleum products.

The only circumstances under which it is now permissible for those subject to EU jurisdiction to deal with Iranian oil are:

  • Pursuant to a pre-23 January 2012 contract, which specifically provides that the supply of Iranian crude oil and petroleum products, or the proceeds derived from their supply, are for the reimbursement of outstanding amounts to EU persons, entities or bodies, or pursuant to an ancillary contract necessary for the execution of such a contract; or
  • Where the oil was exported from Iran prior to 23 January 2012; or
  • Where the oil was exported from Iran on or before 1 July 2012 under a pre-23 January 2012 trade contract, or an ancillary contract necessary for the execution of such a contract.

Since the announcement of Council Decision 2012/35 in January of this year, the International Group of P&I Clubs (the "International Group"), which is based in the EU and provides cover for approximately 90% of the world's ocean-going tonnage, has been lobbying for an exemption or deferral of the prohibition on the provision of (re)insurance in respect of third party and environmental liabilities. The cover provided by the International Group in relation to environmental pollution is significant and ensures that, should a casualty occur, there is sufficient protection to cover the cost of an environmental clean-up and to compensate affected third parties. Despite the problems highlighted by the International Group, the EU re-asserted its determination to proceed with the implementation of the prohibitions set out in the Regulation. See the following:

The prohibition on the provision of third party and environmental (re)insurance from within the EU in relation to Iranian crude oil and petroleum products will have repercussions both within and outside the EU. This is due to global shipping's heavy dependence on reinsurance cover provided from within the EU. While many countries have managed to reduce their oil imports from Iran and have consequently been granted a temporary waiver from extra-territorial sanctions imposed by the US, they remain dependent on Iranian oil to meet their domestic energy requirements. This dependence means that there will undoubtedly continue to be demand for Iranian crude oil and petroleum products and, coupled to that demand, there will be a need for (re)insurance.

With the introduction of the EU prohibition on the provision of third party and environmental (re)insurance, non-EU ship-owners still wishing to carry Iranian crude oil and petroleum products are being forced to look for cover elsewhere.

As has been reported in the trade press, some ship-owners from countries which have previously imported significant volumes of Iranian oil have sought government assistance, with varying degrees of success. Since 27 June 2012, the Japanese government has been offering sovereign guarantees, reportedly providing cover of up to $7.6bn for each tanker importing Iranian oil into Japan. The Indian government has not issued sovereign guarantees for the (re)insurance of voyages carrying Iranian oil but has said that it will relax its usual insistence on oil being imported FOB and allow Iranian oil to be imported CIF with Iran arranging shipping and insurance. The South Korean government, on the other hand, stated that it would cease all imports of Iranian oil after 1 July 2012 and would make up the shortfall in its oil supply with imports from other countries.

Given the likely difficulty of obtaining cover outside of the EU, non-EU ship-owners who are ordered to load Iranian crude oil and petroleum products by their charterers will need to consider carefully whether they can follow those orders or whether the terms of the charter will allow them to validly refuse such orders.

Ship-owners subject to EU jurisdiction, and those who are not but do not wish to risk sailing without full third party and environmental liability cover, should have ensured that any cargoes of Iranian oil which they were carrying were discharged by 1 July. Similarly, Iranian bunkers should have been consumed in advance of the deadline. If charterers / operators are responsible for bunkering under a charterparty, owners may like to consider seeking assurances from them that no Iranian or Iranian blend bunkers will be stemmed in light of the ban in the Regulation.

Sanctions breaches potentially result in both civil and criminal liability and sanctions compliance should therefore be taken very seriously. Should you have concerns about the potential impact of the 1 July 2012 deadline on your business, please contact your usual contact at Ince & Co LLP or Michelle Linderman.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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