EU and U.S. sanctions aim to cut the oil revenues on which Tehran depends to force the Islamic Republic to curb its nuclear programme. The West suspects Iran aims to develop weapons, while Tehran says it needs reactors for electricity supplies.

Iranian oil accounted for nearly 9 percent of Japan's crude imports last year. Japan has reduced the flow already to comply with U.S. sanctions requiring buyers to make sizeable cuts, but wants to avoid more drastic reductions that may drive up energy import costs and hurt the world's third-largest economy.

Refiners cut their purchases even as the country has needed more oil to fire power stations after last year's Fukushima disaster shut down the country's nuclear power capacity.

INDIA, CHINA FACE SAME ISSUE

India's government, which won an exemption to U.S. sanctions this week, has also been trying to figure out how it will get around the EU sanctions.

“We are struggling to find solutions,” Oil Minister S. Jaipal Reddy told reporters in Vienna, where crude producers from OPEC are meeting. The government was studying sovereign guarantees, he added.

Iran's top buyer China has yet to detail how it plans to resolve the insurance problem, but industry sources there have said they will find a way to keep imports flowing.

South Korea will reduce imports to zero in July due to the insurance ban, industry sources have said. Seoul, like Tokyo, has lobbied the EU to delay or get a waiver on implementing the ban on insurers, but is not considering state guarantees, according to government sources there.

Those lobbying efforts have so far failed. The European Union will not cancel or delay the embargo on Iranian oil tankers, EU Energy Commissioner Guenther Oettinger said at an industry conference on Wednesday.

The International Energy Agency said on Tuesday that Iran's crude exports in April and May have fallen by 1 million bpd since the end of 2011 to 1.5 million bpd and that Tehran may need to shut in production.

China, Japan, India and South Korea have cut purchases by about a fifth from the 1.45 million bpd they were buying a year ago ahead of the imposition of the sanctions.

It is the first time Japan has sought to provide guarantees on marine shipments, said an official in the country's transport ministry, which is sponsoring the legislation. The official, who helped draft the bill, said he didn't know when the law will be passed by parliament.