Iran Oil Ties Could Complicate Insurers’ Claims After Tanker Collision Near Singapore

Two oil tanker collision near Singapore in July has raised questions about insurance claims because one of the tankers had previously transported Iranian oil. According to ship watchers and industry sources, this could complicate payments due to Western sanctions.

What happened?

The Singapore-flagged tanker Hafnia Nile collided with the Sao Tome and Principe-flagged Series 1 tanker on July 19 and caught fire about 55 km (35 miles) northeast of Singapore’s Pedra Branca.

The Malaysian navy said no oil leak was found, only a sheen from damage to the Hafnia Nile’s fuel tanks.

Tugboats secured the vessel, which was carrying naphtha and had a damaged engine, at the tanker collision site.

On Thursday, the ship’s manager, Hafnia, said that an oil barrier had been deployed around the stern and damaged area, and two tugboats were dispersing the flashing oil.

Hafnia said it was working with Malaysian and Singaporean authorities to finalize a withdrawal plan.

What’s the connection with Iranian oil?

The Sirius 1 was not carrying any cargo during the accident.

However, ship data from suppliers such as LSEG and Kpler show that the tanker has carried Iranian oil in the past.

Claire Jungmann, chief of staff of the United Anti-Nuclear Initiative in Iran, said the Ceres 1 loaded its last cargo of Iranian oil at the country’s Hajj terminal in March via an Iranian tanker, then transferred the cargo to two tankers around the Strait of Malacca between April 7 and 9 via satellite data.

Jungmann said the cargo arrived in China on May 29.

According to Jungman’s analysis, the Sirius 1 has made at least four voyages carrying 8 million barrels of Iranian oil since 2019. The vessel also made four voyages carrying Venezuelan oil totaling 7.5 million barrels between 2021 and 2023.

The owner of the Series 1 listed in the Chinese shipping database could not be reached for comment.

China, the largest buyer of Iranian crude, has said it opposes unilateral sanctions. Still, traders are relabeling Iranian oil bound for the country as coming from elsewhere, such as Malaysia, Oman, or the United Arab Emirates, according to tanker trackers and traders. Chinese customs have yet to report any Iranian oil imports since June 2022.

What’s unique about this situation?

According to insurance experts, this is believed to be the first such tanker collision in recent years involving a vessel belonging to the so-called shadow tanker fleet, which transports oil subject to Western sanctions.

Government and industry officials have expressed concern about the risks posed by the growing shadow fleet.

“The recent tanker collision between the Hafnia Nile and the Sirius 1 sets a dangerous precedent,” said Jonathan Moss, head of transport and insurance claims specialist at law firm DWF.

“Neither the vessel nor the owner has been identified (under Western sanctions), but if the Ceres 1 carries or has carried Iranian crude oil in the past, its insurers may have grounds to refuse cover or may need to notify authorities of a possible sanctions breach,” he said. ”.

What insurance is there?

Ships typically have protection and indemnity (P&I) insurance, which covers third-party liability claims, including environmental damage and injury. Separate hull and machinery policies protect ships against physical damage.

The Hafnia Nile is insured by Norway’s Gard, one of the 12 largest insurers that insure about 90% of the world’s ocean-going vessels.

Gard said it is “actively supporting” its BW Group member, who operates the Hafnia Nile, but declined to provide details.

Typically, the P&C Club, part of an international group of the industry’s 12 largest companies, covers the first $10 million of P&C insurance losses. Members reinsure each other by sharing claims of more than $10 million to $100 million. The group has reinsurance coverage of up to $3.1 billion.

A person familiar with the matter said Series 1’s property and casualty insurance is covered by a company that is not part of the 12. The vessel is insured by an international insurer of a major supplier, while a Chinese insurer underwrites hull and machinery insurance.

What happens if a claim is made?

The claim in this case may include the cost of repairing both vessels, towing the Hafnia Nile to a berth, the time spent at berth for repairs, and the costs incurred by the salvage company, tugboats, and the vessel’s surveyor.

Typically, each party in a taker collision will commission its own loss adjuster to prepare a report on what happened, determine liability, notify the insurer, and file a claim.

The hull, indemnity, and compensation insurers usually handle the claims process, which can take months or longer.

Liability will be determined by the courts, likely in Asia.

DWF’s Moss said the sanctions rules would complicate any claims against the hull, machinery, cargo, protection, and indemnity insurers.

Moss said if an insurer in the London market or other jurisdictions offers hull and machinery insurance or protection and indemnity insurance, the penalty exclusion clause may be triggered. Moss added that this could hinder the investigation of the claim, including the appointment of loss adjusters, fire experts, etc., which could prevent the insured from obtaining cover from direct insurers or reinsurers.