3642424830?profile=RESIZE_710xDue to current US sanctions against China, there appears to be an interesting marine insurance shift from Europe to China.  This may be being fueled through pressure from banks, class societies, charterers and bunker suppliers about exposure to unilateral US sanctions on Iran and China.

Cosco Shipping Corporation look as if it is shifting most of its tanker fleet to China-based marine insurers; even those vessels that are not directly owned by its two sanctioned entities.  Cosco is attempting to positively manage last week’s US blacklisting.[1]

Cosco, which is a Chinese government-owned shipping company, now has crude and product tankers entered with the China Shipowners Mutual Assurance Association (CSMAA), a Chinese owned insurance carrier.  Last week these ships were insured with the International Group of P&I clubs (GP&I).  GP&I provides maritime liability coverage for 90 percent of the world's ocean going vessels.  Research indicates many of the 49 Cosco fleet of very large crude carriers (VLCC), suezmax and aframax tankers are now entered with the CSMAA insurer, headquartered in Shanghai China.  The CSMAA is not one of the 13 clubs with the GP&I. 

The US sanctions have raised questions about the wider insurance risks of chartering or providing services to all tanker under the Cosco corporation, even as the parent company was deliberately excluded from sanctions. 

The US Office and Foreign Assets Control (OFAC) revealed their sanctions on Cocso Shipping Tanker (Dalian), and Cosco Shipping Tanker (Dalian) Seaman and Shipmanagement on 25 September 2019, explain the US is targeting the shipment of Iranian oil and gas to China. 

Marine analysts saw some Cosco vessels involved in ship-to-ship transfers, and other stealth shipping tactics; such as switching off their AIS technology, to confuse the origin and destination of cargoes of crude, condensate, liquefied petroleum gas and refined products.  It is in question whether shippers could be penalized due to this trickery, but saw charterers, oil companies, banks, and bunker suppliers are beginning to reevaluate their risks in working with the blacklisted Chinese shippers.  This some believe forced Cosco to switch in being “self-insured,” since most Chinese companies are ultimately controlled by the Chinese government.  

Cosco has over 1,000 vessels in its entire fleet.  This includes the world’s largest dry bulk and containership fleet.  The current sanctions and insurance switch have caused VLCC rates to soar to 65 percent on key Middle East Gulf to China routes, as oil traders and companies shun Cosco, canceling loadings and charter alternative vessels.

Most marine insurance groups have provisions that preclude coverage for any vessels that are carrying cargo in breach of government sanctions.  What that means is tankers directly linked to the subsidiaries, were immediately without cover once the US sanctions were announced.  Lloyd’s of London analysts report it is unknown whether Cosco removed other tankers from GP&I coverage on its own initiative, or whether GP&I cancelled their coverage. 

China Concord Petroleum, Pegasus 88 Limited, Kunlun Shipping Company and Kunlun Holding Company were also sanctioned by OFAC.  The CSMAA coverage is being closely monitored by OFAC. 

Violations proven by OFAC authorizes the US Treasury to penalize non-US citizens connected with sanctioned activity.  Secondary sanctions related to Iran can be imposed on anybody who is a non-US citizen who is, “knowingly providing significant financial, material, technological, or other support” to activities or transactions that benefit the energy, shipping or shipbuilding sectors of Iran; according to section 1244 of the Iran Freedom and Proliferation Act of 2012.[2] [3]

Energy analysts think it is unlikely China will immediately stop importing Iranian crude oil, despite the US pressure.  China is standing strong on not being swayed by the US, even since the two countries are already fighting over trade. 

Wapack Labs is in New Boston, NH.  We are a Cyber Threat Analysis and Intelligence Service organization.  For questions, comments or assistance, please contact the lab directly at 1-844-492-7225, or feedback@wapacklabs.com

[1] https://lloydslist.maritimeintelligence.informa.com/LL1129388/Cosco-parent-begins-marine-insurance-exit-from-London-as-sanctions-bite

[2] https://www.ft.com/content/9b61b4fa-dfc9-11e9-9743-db5a370481bc

[3] https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20190925.aspx

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