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    Insurance of Ships Using Bunker Oil Produced From Iranian Crude May Not Violate Sanctions

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    On January 29, 2013, the International Group of P&I Clubs (IGP&IC) released Frequently Asked Questions relating to Council Regulation (EU) No. 1263/2012.  For the IGP&IC FAQs click here and for the E.U. council regulation click here.  Council Regulation 1263/2012 amends the E.U. regulation concerning restrictive measures against Iran, Regulation (EU) No. 267/2012. Referring to revisions to Article 12(1)(d) and (e) of Regulation 267/2012, the IGP&IC notes that ships may be able to use fuel (bunker oil) that includes a blend of Iranian origin crude oil “produced and supplied by a third country other than Iran” without running afoul of E.U. sanctions prohibiting transport of Iranian oil.

    The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued an interpretation under its Iranian Sanctions and Transactions Regulation (31 C.F.R Part 560) providing an exemption relating to importation of or transactions relating to goods containing Iranian-origin raw materials if “those raw materials … have been … substantially transformed in a third country by a person other than a United States person.”  31 C.F.R. 560.407.  OFAC has not specifically applied this interpretation to bunker oil that includes a blend of Iranian crude produced in a third country or indicated whether production of bunker oil from Iranian crude would constitute substantial transformation.

    The revised E.U. regulation allows and, perhaps the OFAC interpretation cited above may permit, use of bunker oil that includes Iranian oil components for fueling ships.  This is important to insurers and reinsurers who wish to ensure that their provision of marine or casualty covers to ships using such bunker oil not violate E.U. and/or U.S. Iranian financial sanctions.  Note that it is unclear whether the E.U. would permit the shipment of such bunker oil.

    By Geoffrey Etherington, partner in Edwards Wildman Palmer LLP’s Insurance and Reinsurance Department in New York, New York, and Carlos Ortiz, partner in Edwards Wildman’s Litigation Department in Madison, New Jersey

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