South Korea will resume imports of Iranian crude next month within levels that comply with U.S. sanctions, government and industry officials said Tuesday, as the country tries to manage the pain that diminished oil supplies meant for the domestic economy.
The resumption will make South Korea the latest Asian country to bypass the European Union's insurance ban on Iranian oil shipments. In July, the EU ban hit the four key Asian markets for Iranian oil, China, India, Japan and South Korea, which were earlier exempted from U.S. government penalties after they made significant cuts to their Iranian oil imports.
South Korea is in a difficult position in its dealings with Iran, analysts said: Seoul wants to maintain close ties with its most important ally, the United States, as Washington pushes for tighter sanctions meant to derail Iran's suspected nuclear weapons program, but South Korea also needs to keep alive crucial business and energy ties with Iran, whose crude is cheaper than other oil exporters.
Critics say major Asian countries' pursuit of Iranian oil hurts Western efforts to confront Tehran's nuclear ambitions.
South Korean government officials, however, said the oil import resumption will comply with the Obama administration's guidelines.
"The volume of oil South Korea is set to resume importing from Iran is within the range that was promised to the United States," said an official at South Korea's Knowledge Economy Ministry. The official spoke on condition of anonymity because of his involvement in ongoing diplomacy on the issue. The official confirmed that imports of Iranian crude oil will resume next month.
In the first five months of this year, South Korea reduced its Iranian crude imports by 16 percent from a year earlier.
Since the EU ban stopped imports from Iran in July, South Korean refiners have been talking with the Iranian National Oil Co., the National Iranian Tanker Co. and the Iranian government about ways to ship crude on tankers provided and insured by Tehran.
Before the EU sanctions hit, South Korea was the world's fourth-largest buyer of Iranian crude.
SK Energy Co., South Korea's largest oil refiner, which purchased 10 percent of its crude from Iran before the sanctions hit, is discussing dates and details with Iranian firms and the government in Tehran, said spokesman Yoo Jung-min. Hyundai Oil Bank Co., South Korea's No. 4 refiner, also expects to restart oil purchase from Iran next month, company spokesman Koh In-soo said. They are the only South Korean refiners that buy crude from Iran.
The resumption of oil imports will help the nearly 3,000 mostly small and mid-sized South Korean businesses that do businesses with Iran. Seoul joined global sanctions against Iran in 2010 and bans selling goods related to nuclear weapons and oil to Iran. But South Korea and Iran found a way for South Korean companies to conduct trade with Iran without violating sanctions.
Under a 2010 agreement, Iran's Central Bank opened accounts at South Korean banks. While exporters usually get paid in the foreign currency used by trading partners, the 2010 measure allowed South Korean exporters doing business with Iran to get paid in Korean won.
Because deposits are then later used to pay South Korean exporters that sold goods to Iran, halting oil imports from Iran hurts these exporters. South Korea's exports to Iran increased 32 percent last year over a year earlier to $6 billion.
Last week, India joined Japan to offer state-backed insurance coverage on Iranian oil shipments. Insurance coverage is crucial in shipping oil because of possible environmental claims and liability from oil spills.
Seoul and Washington are major trade and security partners that recently put in place an ambitious free trade deal, and 28,500 American troops are stationed here as a deterrent against North Korea. But South Korea, Asia's fourth-largest economy, depends heavily on oil imports and is uneasy with joining a campaign against an important energy partner.
"South Korea's participation in the U.S. sanctions against Iran has been more symbolic than substantive," said Lee Hee-soo, a political scientist and Middle East expert at Seoul's Hanyang University. "Considering the huge trade South Korea does with Iran, it is difficult for South Korea to be as tough on Iran as the United States wants its ally to be. Iran's too big an energy and business partner for South Korea."
Date: 22 August 2012 Read More