* Hyundai Oilbank struggled to renew reinsurance on Nov. 30
HONG KONG/TOKYO, April 11 (Reuters) - South Korea could
become the second major buyer of Iran's crude to face a halt in
imports from the Middle Eastern nation, as insurers broaden
Western sanctions to refineries, people involved with the matter
Tough curbs by the United States and Europe to force Tehran
to end its nuclear programme have more than halved Iran's oil
exports over the past year, as an EU ban on insurers aiding
transport of its crude left buyers unable to find coverage.
Now the focus is shifting to refineries that process the
oil, as insurers worry about running afoul of the sanctions.
Refiners operating without insurance pose huge financial
risks to their owners. Indian insurers have already taken a
tough stance, warning that they would not be able to pay claims
at plants processing Iranian crude.
A similar move is underway in South Korea, the
fourth-biggest buyer of Iranian crude, worth about half a
billion dollars each month.
Hyundai Oilbank, one of South Korea's two refiners of
Iranian crude, struggled to find reinsurers willing to renew its
coverage late last year, a person with direct knowledge of the
"It's not a problem of a higher price. Even if the
reinsurers get a higher premium for covering Iranian crude, the
policy is forbidden," the person said, adding that the world's
two biggest reinsurers, Munich Re and Swiss Re, did not want to
cover Iranian crude for fear of breaching the sanctions.
The person is an employee of reinsurer Korean Re, and did
not want to be identified.
Reinsurers back insurance companies, and without the former,
the insurance industry can't function. Wariness by reinsurers in
both Europe and the United States, who dominate the global
market, was among the chief reasons why India's insurers have
said they may not be able to provide coverage.
Refiners in India, which is Iran's second-biggest crude
buyer, said last month that they would halt imports if they were
unable to find a solution.
SK ENERGY CONTRACTS DUE IN JULY
Insurance contracts for South Korea's other major Iranian
crude oil refiner, SK Energy, come due in July, said the Korean
Most Iranian crude flows to Asia, with China, India, Japan
and South Korea the biggest buyers. It was not immediately clear
how China's insurers and reinsurers are treating the sanctions
in relation to refiners.
Responding to a Reuters query about what China would do if
global reinsurers stopped covering refineries processing Iranian
crude, Foreign Ministry spokesman Hong Lei said China's economic
development required it to keep normal energy ties with Iran.
"This cooperation is transparent," Hong said. "Such
cooperation is also not in violation of the relevant resolutions
of the United Nation's Security Council and does not hurt the
interests of the international community."
State-backed reinsurer China Re was not immediately
available for comment.
Last year, when sanctions wiped out tanker insurance, it
forced a temporary halt to imports in Japan and South Korea. To
get around the ban, South Korea and China asked Iranian tankers
covered by Iranian insurance to deliver the oil. India provided
partial insurance and allowed Iran to deliver, and Japan
provided a sovereign guarantee.
The countries were still paying nearly $3.5 billion to Iran
each month for oil at the time.
A decision by global reinsurers to stop covering refineries
processing Iranian crude could wipe out that remaining trade.
Iran's remaining oil exports depend in large part on the $50
billion global reinsurance industry, which underlies all
insurance policies, including those of oil refineries.
Domestic insurers typically write policies but they rely on
the financial support of a handful of global reinsurers,
particularly for large policies such as those for refineries.
Eight of the ten largest reinsurers in the world are based
in the European Union or the United States, according to
insurance ratings agency A.M. Best.
Those reinsurers, especially those in Europe, are becoming
increasingly concerned about EU sanctions that expressly
prohibit "directly or indirectly...insurance and re-insurance
related to the import, purchase or transport of crude oil and
petroleum products of Iranian origin."
In an e-mail reply to Reuters' questions, the world's
largest reinsurer, Munich Re, said Iranian crude was deemed such
until it had been subjected to "material, economically justified
processing in a third country", and it was necessary for
insurers to check if it was being processed to bypass sanctions.
"In many cases [these checks] will certainly prompt insurers
to refuse cover due to apprehension about breaching the
sanctions," Munich Re said.
Munich Re declined to comment on Hyundai Oilbank and did not
directly address whether it would cover refineries processing
Swiss Re, the world's second-largest reinsurer, declined
Insurance contracts for refineries typically come up for
renewal each year. Korean Re has begun asking multinational
insurers to clarify how they will treat Iranian crude in
refineries, the employee said.
Roughly half of the reinsurers Korean Re speaks to will
cover Iranian crude in refineries; the rest refuse, citing
sanctions, the Korean Re employee said.
"It's a gray area. It is really ambiguous."
TOUGH TO ENFORCE
Whether refineries fall under the sanctions may be a moot
point as the rules will be difficult to enforce, said a Japanese
insurance executive, who recently negotiated refinery policies
with European reinsurers ahead of April 1 renewals.
Refineries process crude from many countries and aren't
required to disclose the origin of the crude they process, said
the source, who spoke on condition of anonymity.
Furthermore, once Iranian oil is imported, its ownership
transfers to the refinery, the source added.