India plans to set up a fund of up to 20 billion rupees ($368.4 million) to back local insurers in offering cover to refiners who process Iranian crude, three government sources said, as sanctions discourage global reinsurers from taking on the risk.

The money will come from the premiums normally paid by insurers for reinsurance cover, said the sources, who requested anonymity.

They said the fund will be run by state-run reinsurer General Insurance Corporation of India and will get an annual contribution of up to 20 billion rupees from Indian insurers and the oil ministry.

“This is not a sovereign guarantee. It is just that we are looking to use the premium money for reinsurance,” said one of the three sources with direct knowledge of the matter.

India, which relies on imports for 80 percent of its crude needs, has cut purchases from Iran along with China, South Korea and Japan in order to secure a waiver from western sanctions aimed at curbing Tehran’s nuclear programme.

India is Iran’s second-largest buyer, taking around a quarter of its oil exports worth around $1 billion a month, while Tehran has slipped to seventh place among New Delhi’s suppliers from second in 2011/12.

Insurance problems threatened to dry up India’s purchases altogether as refiners could not get cover for installations processing the crude when policies came up for renewal.

Insurers rely on European reinsurance markets to hedge their risk, but EU sanctions have blocked European reinsurers from any involvement in covering shipments of Iranian oil, prompting India to set up limited emergency cover.

The first official said the proposal will be implemented after it gets the nod from the foreign affairs ministry.

($1 = 54.2850 Indian rupees)

(Reporting by Rajesh Kumar Singh and Manoj Kumar; editing by Jane Baird)