The United States and European Union have tightened measures aimed at reducing Iran's oil trade, stemming the flow of petrodollars to Tehran to force the OPEC member to halt a nuclear program the West suspects is intended to produce weapons.

European insurers and reinsurers will be prohibited from indemnifying ships carrying Iranian petrochemicals anywhere in the world from May, and crude and oil products from July.

Although Japan's P&I Club, which provides insurance for shipping companies, does not directly fall under the sanctions regime, it is largely dependent on the European reinsurance market to hedge its risk.

Japan's main ship insurer said it wanted to know ahead of time of any member sending a tanker to transport Iranian oil because the insurer had the right to deny coverage.

"The member shall conduct any such voyage in the full knowledge of the risk that the club may lawfully cancel the contract of insurance or decline to pay claims," the club said in a circular to its members on Tuesday.

The insurer, whose members include shipping firms Kawasaki Kisen Kaisha (9107.T), Mitsui O.S.K. Lines (9104.T), and Idemitsu Tanker Co (5019.T), has said it would only provide coverage worth a maximum $8 million for a tanker carrying Iran oil and petrochemicals, down from the typical $1 billion coverage.

"Any reinsurers including other (P&I clubs) subject to EU legislation will not be able to pay out if a claim involves a sanctioned cargo," the club said. "Because of this, the member could suffer a significant shortfall if any claim is made."

Japanese trading houses were reducing Iranian crude imports from April, industry sources said on Tuesday, joining the country's refiners in deepening cuts even after the United States said Japan had done enough to support sanctions against Iran.

The United States has pointed to Japan as an example for other Iranian crude buyers as the country reduced purchases even though it needed more oil overall to help meet rising domestic demand after the earthquake, tsunami and nuclear disaster in March 2011.

(Editing by Randy Fabi and Himani Sarkar)

• A Permanent Economic Emergency