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Legal and financial risk growsas Iranian ships ply Asian seas
30 Sep 2011
International sanctions against Iran's national shipping line in response to Tehran's nuclear ambitions are mounting. The world's largest container carrier Maersk has suspended
operations at three Iranian ports while the US Treasury has launched legal action against 121 companies and individuals affiliated with the Islamic Republic of Iran Shipping Lines (IRISL).
The latest round of measures, for providing support to Iran's missile and nuclear programmes, came after IRISL was ostracised by the international maritime community with mortgage foreclosures on its ships and access to insurance greatly limited, prompting speculation IRISL is facing its own death knell.
However, as IRISL limps on, a new set of risks has emerged with potentially catastrophic ramifications _ particularly in East Asia where the monitoring of IRISL's fleet has improved dramatically but surveillance still remains patchy.
"Any Iranian ship in Asian waters should send alarm bells ringing as Iran tries by all means to escape sanctions imposed for its involvement in nuclear weapons proliferation," said Carl Thayer, Emeritus Professor with the University of New South Wales in Australia.
"The effect of the sanctions led IRISL to put unsafe ships to sea, where they pose a potential environmental hazard. Who will foot the bill if an IRISL ship is involved in an accident and spills its fuel? Asia states that allowing IRISL ships into their ports should have second thoughts," he said.
Doing business with Iran and IRISL has become increasingly difficult in recent years, with United Nations, European and US sanctions making even the most aware operator cautious about trading with country.
Tehran insists the sanctions are unjust and its nuclear programme is purely for peaceful purposes while IRISL has echoed those sentiments and says its operations remain profitable and sound.
While maintaining this stance, IRISL has also been accused of attempting to evade sanctions through a complex network of front companies to take advantage of loopholes in maritime law. But it is maritime law that now poses a problem for IRISL and the waters that its ships ply.
Under the International Convention on Civil Liability for Bunker Oil Pollution Damage (2001) shipowners are required to hold insurance or other financial security to cover the liability for pollution damage in an amount equal to the limits of liability. This limit is usually up to US$1 billion.
A well-documented cat-and-mouse game has been played out against IRISL and its efforts to buy adequate insurance for its operations. Of one specific class of insurance _ Protection and Indemnity (P&I) potential consequences could be felt beyond the US, Europe and Iran and especially in Asia.
When goods are shipped around the world, the owners of the goods and vessels usually take out marine insurance. This cover, however, does not generally extend to third-party liability in the event of an accident.
"P&I cover is third-party liability insurance that provides compensation to third-party victims of maritime incidents," said Andrew Bardot, secretary-general of the International Group of P&I Insurers.
It is essential to reassure port authorities that should a vessel run aground, collide with another ship, are involved in an oil spill or fall foul of a serious incident, insurance cover is in place to pay for damage to ships, ports or the environment.
The great costs associated with the Deepwater Horizon spill in the Gulf of Mexico of between $2 billion and $5 billion or the still evolving Fukushima disaster in Japan have driven home such nightmare scenarios. The Exxon Valdez showed litigation and reparations could take decades to resolve.
IRISL's P&I cover was withdrawn by Lloyds of London in 2009 following UK sanctions against the shipping line. IRISL then found cover from a P&I provider operating out of Bermuda. In 2010 Bermuda passed legislation, bringing them in line with the UK.
"EU regulations have resulted in cover being terminated or not renewed for a number of designated Iranian shipping companies including IRISL and the NITC (National Iranian Tanker Company)," Bardot said.
IRISL then approached the Islamic P&I club who refused to provide cover.
Finally IRISL secured P&I cover from Moallem, an Iranian insurer with no record of providing this type of insurance. On Dec 21, the US Treasury sanctioned Moallem.
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 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.
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 HRH Crown Prince Maha Vajiralongkorn in Germany to try and resolve a longstanding 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.
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 Deepwater 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.
"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 Asia, 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 maritime authorities.
Source: Bangkok Post