Builders hit by US sanctions against Iran
Seen above is Esfahan Oil Refining Company facilities in Esfahan, Iran. Daelim Industries has canceled a $2.08 billion deal to build additional refinery facilities in Esfahan. / Courtesy of Esfahan Oil Refining Company
By Jhoo Dong-chan
Construction companies have come under pressure from the latest U.S. sanction against Iran. Daelim Industrial said a construction deal worth 2.23 trillion won ($2.08 billion) for a refinery project in Iran was canceled.
Major Korean builders have signed construction contracts worth a total of 5.5 trillion won in Iran separate from Daelim Industrial's project, but they are also likely to go back to square one due to the U.S. sanctions.
Daelim Industrial said Friday that it has canceled the refinery project with Esfahan Oil Refining Company. Under the deal, the Korean builder was supposed to build additional refinery facilities at Esfahan, Iran's third most populous city.
“Due to worsening external conditions, including economic sanctions imposed on Iran, the Esfahan project failed to procure financing over a year,” said a Daelim Industrial official.
“The contract was supposed to complete the financing by the end of last month, but it has failed to deliver.”
Other construction deals, which Korean builders clinched in Iran, are also likely to face a similar ending.
Last March, a consortium led by Hyundai Engineering inked a deal worth 3.8 trillion won with Ahdaf Investment Company for the construction of the second phase of a refining complex at Iran's South Pars Gas Field in the Persian Gulf.
Hyundai Engineering & Construction (E&C) also joined the consortium, but it also has yet to complete the financing for the project.
SK E&C clinched a deal with Iran's Tabriz Oil Refining Company worth 1.7 trillion won to renovate the Iranian company's refinery facility in August, but has also yet to complete the financing for the project.
“The company is waiting for the Iranian government to approve the financing,” said an SK E&C official. “But the situation isn't very optimistic.”
Not only Korean builders but also refiners are under pressure from the sanctions.
Since the reinstatement of the U.S. sanctions includes the secondary sanction against countries that import Iranian crude oil, Korean refiners are reviewing a plan to reduce their oil imports from the country by 20 percent.
Korean refiners, including SK Innovation and Hyundai Oilbank, imported 140 million barrels from Iran last year, but are likely to reduce the volume proactively in a bid to be exempted from the secondary sanction.
“The nation's gasoline price has reached 1,600 won per liter,” said a NH Nonghyup official.
“If Korean refiners decide to reduce their imports from Iran, it is likely to push the gas price even higher. And it will naturally lead to the rise in prices.”