TOKYO (Reuters) - Japan’s government may provide cover for tankers bringing in Iranian oil once a European Union ban on insurance takes effect in July, Japanese officials said on Wednesday.

Japan has been lobbying the EU to remain exempt from the ban on insurance and reinsurance of Iran’s oil exports, which is part of a raft of Western sanctions aimed at shrinking Tehran’s oil revenues to force it halt its controversial nuclear programme.

The officials said the Japanese government was considering asking parliament to enact a law that would enable it to provide the necessary insurance cover.

World powers and Iran began negotiations in Baghdad on Wednesday aimed at making progress towards resolving the dispute over the nuclear programme.

“All eyes are on the negotiations in Baghdad today,” said one official who declined to be identified as he is not allowed to talk to media. “The lobbying for insurance and reinsurance exemptions is the prime focus.”

The Nikkei newspaper had reported that the government was planning to submit the draft to parliament in early June, with the aim of getting it passed by the end of the month.

Under Japanese law, shipping companies entering the nation’s territorial waters must obtain liability insurance against damages from accidents, including oil spills and fatalities.

Most of this coverage has been offered by the Japan Shipowners’ Mutual Protection & Indemnity (P&I) Association, which in turn obtains reinsurance from other P&I clubs and other insurers to cover potentially large claims.

Insurers in the EU, the biggest market for reinsurance, will be prohibited from covering liabilities for tankers carrying Iranian crude oil.

Without reinsurance, liability provided by Japanese insurers would only cover damages up to $8 million, an official at Japan P&I Club said. Requests to get cover from Chinese insurers failed, the official said.

Currently, tankers are insured up to $7.6 billion for any critical incident except an oil spill. Up to $1.0 billion is provided for oil spills, which have less coverage because they occur more frequently.

The government expects the scheme to be used by 16 or so tankers carrying Iranian crude in the first year, while shipping companies that seek the additional government coverage will likely be asked to pay a 20-30 million yen ($250,300-$375,400) annual fee per tanker, the Nikkei said.

Iran, OPEC’s second-largest producer, exports most of its 2.2 million barrels of oil per day to Asia, home to its four main customers: China, India, Japan and South Korea.

Japan secured in March a waiver from United States financial sanctions against Iran, and its imports from Iran have fallen sharply despite an increase in overall oil demand after last year’s Fukushima nuclear disaster. 

($1 = 79.9100 Japanese yen) (Reporting by Risa Maeda and Aaron Sheldrick; editing by Miral Fahmy)