Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
Korea unblocks frozen Iranian funds, eyes improved bilateral ties
Korean oil tanker MT Hankuk Chemi, operated by DM Shipping, departs the Iranian port of Rajai, after being released, along with its captain, in this April 2021 file photo. Iranian authorities had seized the ship near the Strait of Hormuz in January 2021, alleging violations of environmental regulations. Courtesy of Ministry of Foreign Affairs
By Nam Hyun-woo
By Nam Hyun-woo
South Korea unblocked frozen Iranian funds, following the release of five Americans from prison to house arrest in Tehran in a deal made between the U.S. and Iran, drawing anticipation that frozen relations between Seoul and Tehran may be thawing.
Central Bank of Iran Governor Mohammad Reza Farzin said Saturday that all of Iran's frozen funds in South Korea have been unblocked and they would be used for “non-sanctioned goods.” The U.S. said those funds would be used “to buy food, medicine, medical equipment that would not have a dual military use.”
Following the deal, Iran's official news agency, the Islamic Republic News Agency, reported that Iranian funds worth $6 billion in South Korea have been converted into euros in a bank in Switzerland.
Since 2019, an estimated $7 billion had been held in two South Korean banks ― Woori Bank and the Industrial Bank of Korea ― after the U.S. placed sanctions on Iran. According to Farzin, it lost $1 billion due to currency devaluation.
During this period, relations between Seoul and Tehran have aggravated.
In 2021, the Hankuk Chemi, an oil tanker operated by South Korean shipping company DM Shipping, was seized by the Islamic Revolutionary Guard Corps between January and April 2021. At the time, Iran accused the vessel of polluting the water with chemicals and breaching environmental regulations, but it was widely interpreted as Tehran's protest against the frozen funds.
In January this year, relations between the two nations met further turmoil after Seoul's President Yoon Suk Yeol said that South Korea and the United Arab Emirates are in similar positions, respectively facing North Korea and Iran as their main enemies and biggest threats. Following the remarks, South Korea and Iran both called in each other's envoys to lodge protests.
The tensions have had a tangible impact on trade between the two nations, resulting in a downtrend in the two countries' trade. According to the Korea International Trade Association, South Korea's trade with Iran amounted to $17.43 billion in 2011, but plunged to $177 million in 2021 and $195 million in 2022. During the period, most South Korean firms ceased their Tehran operations, and only four companies were keeping personnel there as of September last year.
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When contacted by The Korea Times, the Iranian Embassy was not available for comment. The Ministry of Foreign Affairs declined to confirm details about the U.S.-Iran deal saying that it hopes for a smooth resolution of the issue.
Though the fund's release does not mean the lifting of U.S. sanctions on Iran or the revival of the Iran nuclear agreement, called the Joint Comprehensive Plan of Action, expectations are growing for improved ties between Seoul and Tehran, especially on the economic front.
Hopes are high among heavy industries, such as machinery, construction, petrochemical and steel, which accounted for the majority of Seoul's exports to Tehran.
Gaining attention is builder DL E&C, which has been operating its outpost in Tehran since 1975. In 2016, DL E&C's predecessor, Daelim Industrial, landed a $1.9 billion deal with Iran's Isfahan Oil Refinery to build an oil refinery but saw it frustrated following the economic sanctions.
Steelmakers are also casting a rosy outlook as builders' deals will likely result in increased demand for their steel.
“Though we have to keep watch how transactions from trade will go due to the sanctions, an improved relationship between Seoul and Tehran is a good signal for heavy industries,” an official at a domestic steelmaker said.
Medical devices and pharmaceutical products are also emerging as new trade items, as the existing sanctions ban foreign countries from trading goods other than for humanitarian purposes.
According to a Korea Trade-Investment Promotion Agency report on Iran, South Korea resumed exporting drugs, medical devices and other health care products to Iran, as the U.S. sanctions allowed the trade of humanitarian goods in June 2020 due to the COVID-19 pandemic.
“To continue the cooperative relationship with Iran, it is necessary to sustain the export of humanitarian goods such as medical equipment, pharmaceuticals and food as part of humanitarian aid,” the report said.
Along with direct trade with Iran, the stability of South Korean crude oil imports is expected to be improved.
After the Seoul-Tehran ties were frayed, concerns have been raised about the possible fallout on South Korea's oil imports, because the country transports more than 70 percent of its crude oil imports via the Strait of Hormuz.