Bomborra Media
PART IV: The Costs

Published on Oct 23, 2011 by Luke Hunt

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AsiaWATCH — In the final installment of this four part series Luke Hunt examines the potential costs associated with Iran’s national shipping company, stemming from sanctions imposed against the Islamic country due to its controversial nuclear prograame. Parts of this article has appeared in previous publications.  

All P&I providers re-insure against catastrophic losses, which kicks in for large exposures, it is not clear who Moallem uses for re-insurance. Major European insurance houses would not be in a legal position to offer cover while the Peoples Insurance Company of China (PICC) has been touted as a possibility.

But analysts said given its ongoing negotiations over access to Lloyds of London it was highly unlikely that PICC would risk its international standing by being associated with a controversial and sanctioned client like IRISL.

As noted by Bardot: “Details of the cover are unknown.”

Within maritime circles the presumption is the Iranian government is the reinsurer of Moallem.

Analysts said given doubts about Moallem and the severe restrictions on the Iranian government, banks and other institutions, how IRISL and Tehran would react to a shipping and environmental calamity and what options were opened for redress and compensation goes to the heart of the issue.

It’s an issue that Greenpeace says must be addressed by the 10-nation Association of South East Asian Nations (ASEAN) given the threats to livelihoods and food security — and any legal loopholes should be closed while uninsured ships must be barred from entering regional ports.

Keith Loveard, a regional security analyst with Jakarta-based Concord Consulting said an Iranian shipping disaster off the coast of Indonesia would cause rifts within government circles as was evident with the leak from a Thai rig off the northern Australian coast last year.

“The government would be caught between different currents with the foreign ministry attempting to maintain smooth relations while the environment ministry would be hopping mad and local communities would be left to deal with the mess.

“This is all very hypothetical but the longer rogue ships operate without any insurance cover the likelihood of something going wrong obviously increases,” he said.

Others suggested a means of recovering costs incurred in dealing with an environmental incident would be to sequester any Iranian state-owned property or assets within the affected country such as aircraft operated by state-owned Iran Air.

Gavin Greenwood, a risk analyst with Hong Kong-based Allan & Associates said the recent seizure of a Thai aircraft used by the country’s crown prince in Germany to try and resolve a long standing dispute over money was one example over how this could work.

“The International Court of Justice could also be involved, though this is a long term proposition,” he said, adding “Iran used the ICJ to claim restitution from the US after a US Navy warship shot down an Iran Air Airbus in July 1988.”

Mohan Malik, Professor of Asian Security at the Asian-Pacific Center for Security Studies in Honolulu said the location of an accident involving the Iranian shipping line would also be important.

“If it happens in the busy Malacca Straits or in the South China Sea, most littoral and major powers will be forced to contribute to the clean up in order to facilitate an uninterrupted flow of energy and goods,” he said.

“Of course there will be law suits against the Iranian government too but the Islamic clerics can be expected to invoke Allah’s wrath on those who do so. Also the International Maritime Organization (IMO) and other UN agencies would be called upon to play a greater role in ensuring that uninsured shipping lines are not allowed to operate in international waters.”

The IMO declined to comment on IRISL, however, sources close to the organisation said it was undertaking amendments to its strategic direction in regards to liability and compensation claims in the wake of the Deep Horizon disaster.

Most maritime authorities demand a Blue Card from the P&I insurer as evidence that sufficient insurance is in place to meet liability requirements under the Bunker convention.

But in Asia it is not clear how routinely this is enforced or checked. If a maritime agency had doubts about the owners or operators ability to meet a liability it is able to deny a vessel entry or exit from ports or waters under its control.

Thayer said that lack of clarity in Asia demonstrated “yet again” the weakness of the region’s security architecture and the reluctance of many Asian states to support sanctions.

“By allowing the IRISL to continue in the face of sanctions they are undermining not only good order at sea but inviting a disaster for which they will have to assume responsibility,” said Thayer. “Banning IRISL ships from Asian ports would be a good first step in supporting the non-proliferation regime and protecting the marine environment against an accidental fuel spill.”

While the US, EU and UK have taken the lead against Iran in regards to its declared and undeclared nuclear weapons ambitions, the real world impact of those sanctions are now being seen well beyond the Iranian interests that have been targeted.

IRISL continues to operate in Asian waters, with untested and unproven insurance and the responsibility that Asia does not become a victim of events in Iran now fall onto the shoulders of Asian governments and their maritime authorities.