US exit from Iran deal may affect South Korea's oil imports

A gas flare on an oil production platform in the Soroush oil fields is seen alongside an Iranian flag in the Persian Gulf, Iran, July 25, 2005. / Reuters

The United States' decision to reinstate sanctions on Iran could constrain South Korea's oil imports from the Middle Eastern nation and cast uncertainty on the business prospects of local refiners, industry insiders said Wednesday.

The U.S. and other world powers agreed to lift some economic sanctions on Iran in a 2016 agreement, but President Donald Trump announced Tuesday that the U.S. will walk away from the deal and impose "powerful" sanctions on Tehran.

While the Treasury Department said sanctions on Iran will come with a six-month grace period, industry insiders say Washington's tough decision on the world's fifth-largest oil producer is expected to have ripple effects on South Korea's oil trade and the energy industry as a whole.

South Korea had been buying condensates from Qatar and the U.S., but after the lifting of sanctions on Iran in 2016, local oil refiners sharply jacked up the imports of the gassy ultralight fossil fuel from the Middle Eastern country.

Iranian oil accounted for 13 percent of the country's total crude imports last year, coming in third place after Saudi Arabia and Kuwait.

Industry insiders say the scope of the impact will be determined by a range of factors, including how much Iranian crude is restricted by the sanctions and whether other major producers can fill the gap.

Local refiners say cutting off Iranian oil imports will have a limited impact in the short term, but increased volatility in the market could create uncertainties for businesses.

"The short-term impact is limited as local refiners have time to prepare measures to replace Iranian oil purchases with other imports until the renewed U.S. sanctions go into effect," an official from a local refiner said.

Experts say the fresh U.S. sanctions could affect Korean companies seeking to do business and invest in infrastructure and development projects in Iran.

"South Korea's trade with Iran has revived recently, but renewed sanctions could put limits on future investment plans," Moon Byung-ki, a researcher at the Korea International Trade Association (KITA), said. "South Korea's exports of construction, engineering and air conditioners have risen in line with Iran's increased investment in infrastructure and petrochemical facilities, but those areas could take a hit."

In 2017, South Korea exported $4.02 billion worth of goods, including auto parts, display and chemical products, to Iran, while importing $8 billion from the Middle Eastern nation, according to KITA.

On Wednesday, the Ministry of Trade, Industry and Energy convened a meeting with local refiners, a trade promotion agency and other related organizations to figure out the potential impact from the fresh economic sanctions on Tehran.

"The government will push for consultations with U.S. counterparts to earn an exemption from Iran oil sanctions and closely monitor the latest developments to minimize impact on local companies," the ministry said in a release. (Yonhap)