EU sanctions Iran by refusing to insure oil tankers

An oil tanker is seen off the port of Bandar Abbas, southern Iran, on July 2, 2012. Iran has come up with several methods to get around the European insurance embargo on ships loaded with its crude.

Kai Ryssdal: It's been, what, years now, that Europe and the United States have been imposing economic sanctions on Iran over its nuclear program. Usually without a lot of impact because Iran has so much crude oil to sell. Now the EU's come up with a free market approach, sort of: o more insurance for the tankers that carry Iranian oil, which actually might be working.

Julian Bray covers the shipping industries from London. Good to have you with us.

Julian Bray: Good to be here as well.

Ryssdal: Is it as simple as the European Union saying, you can't buy Iranian oil, or is it using another enforcement mechanism?

Bray: Well, the enforcement mechanism is very, very simple. What they are doing is they are saying, we won't insure you, and so what actually happens is as most of the insurance is carried out in London, it is a very easy bar to put in place because, quite simply, if a tanker goes into a port and hasn't got insurance, then of course, it will be seized. So what has happened is that Tehran has also decided to go into the insurance market, so there are other ways of doing these things. Of course you can always reflag ships, which means instead of having your own flag on it, you put a flag of convenience, and therefore your ship, say, becomes part of the state of Moldova, or something like that. 

Ryssdal: I thought Moldova was landlocked. 

Bray: Well no reason why they can't have a ship.

Ryssdal: That's right [laughs]. This does present the Iranians with a problem because they are pumping all this oil and can only see part of it and they have to put it some place.

Bray: Well what they are doing of course, if they are not sticking it into spare tankers, they are actually cutting production. Now the problem in the UK, of course, now we're in Ireland and we're actually a very cold little country and we do actually need the heating during the winter or energy in the summer as well. So this is going to affect our oil prices, it is going to affect the price of every available good and service that we buy.

Ryssdal: The whole economy. Does this insurance mechanism, that the EU is using, does it lend itself to cheating, I guess would be the word? There's got to be all kinds of ways?

Bray: Well let me put it like this, it's sort of creative accounting. You don't actually have to pay in cash. So they will actually say, we'll come to a bartered arrangement or it might be an offset arrangement through a third country, which of course is a form of cheating. But the whole point is will they get the oil, and so if they, shall we say, get it the neighboring country and it's a short trip over the border -- and also I did hear that some people are refitting standard shipping containers, putting a kind of vinyl liner inside, and are actually putting the crude inside shipping containers. Now that's very, very crafty.

Ryssdal: Wow, and what could possibly go wrong with a vinyl liner inside a steel shipping container. Julian Bray in London, Julian, thanks very much. 

Bray: Thank you. 

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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