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Iranian soldiers patrol the Strait of Hormuz on Apr. 30. (Xinhua News Agency/Yonhap News)
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US sends last-minute email rejecting S. Korea’s request for more time
Imports of Iranian condensate by South Korean refining companies were halted as of midnight on May 2 (EST) amid intensified US sanctions against Iran. While South Korea, China, and Japan were among eight countries granted a six-month grace period on Iranian crude oil import ban measures initiated by the US last November, South Korea was forced to halt its Iranian condensate imports when the US refused to brook any exceptions in its heavy push for “zero Iranian oil exports.” Since the US’ move to scrap its nuclear agreement with Iran and restore sanctions, South Korea had been importing only condensate as a material for petrochemical products, without any imports of Iranian crude oil. In the late stages, the South Korean government attempted to negotiate an arrangement with the US in which it would continue imports through the same kind of “special license” used by the US with Iraq, but was reportedly notified by the US on the morning of May 2 that this would not be possible. On Apr. 22, US Secretary of State Mike Pompeo announced that no further exceptions would be recognized for South Korea or the other seven countries. Two hours earlier, US State Department Special Representative for Iran Brian Hook had called his dialogue counterpart, the Foreign Ministry’s Deputy Minister of Economic Affairs Yoon Gang-hyeon, to apologize for the decision not to grant an exception and ask for Seoul’s understanding. In response, the South Korean negotiation team returned to the US with a new idea for applying the same special license approach used by the US with Iraq. Suggestion of adopting Iraq’s special license approach Facing a shortage of electricity, Iraq relies on Iran to supply four gigawatts of its total power generation of 18 GW. Some of the amount is supplied directly, while a significant portion of the remainder is used for power generation through imports of Iranian natural gas. The country continued to import Iranian gas through ongoing renewals of its special license by the US. The South Korean proposal involved using the same approach to allow for continued supplies of Iranian condensate for an 18-month period as it seeks as alternative supplier. In making the proposal, Yoon reportedly stressed that the condensate imported from Iran by South Korean companies was not technically subject to US sanctions, with Hook responding that Washington would “consider” the point. The US had originally planned to announce the results by Apr. 30, but reportedly sent an email to South Korean government officials on the morning of May 2 – a few hours before its full-scale intensification of Iran sanctions went into effect – stating that it could not accept Seoul’s proposal based on its “zero Iranian oil exports” policy. Uncertain if won-denominated transactions will continue It also appears uncertain whether South Korea will be able to maintain the won-denominated transaction system it needs to continue trading with Iran. “We explained that even if we can’t import condensate, the won-denominated transaction system needs to be continued, and while it remains in place for now, the US is demanding additional information, which will require discussions with Washington,” a senior Ministry of Foreign Affairs official told reporters on May 2. “We will continue working to develop follow-up measures, including measures to continue the transaction system,” the official added. Introduced in October 2010 after discussions with the US as a way of sidestepping foreign currency transactions with Iran, the won-denominated transaction system is designed to prevent dollars from entering Iran by establishing won-denominated accounts for the Central Bank of Iran (CBI) at IBK and Woori Bank to allow trade payments between the two sides to be made in South Korean won. Trends in international oil prices and the actions of China, India, Turkey, and other countries that have objected to the US measures appear poised to become key variables in the sustainability of the Donald Trump administration’s tough approach to sanctions and aim of reducing Iranian oil exports to zero. Washington’s latest announcement of its measures to stop Iranian crude oil imports by countries around the world drew vehement objections from China, India, and Turkey, which have been importing large volumes of crude oil from Iran. Going ahead, the countries appear likely to attempt to use companies and individuals without any involvement in transactions with the US as a means of importing Iranian crude. The US’ current network of sanctions bars companies and individuals that import Iranian crude oil from engaging in transactions with US companies and financial institutions. Because of their large-scale transactions with the US, South Korean companies would inevitably face US sanctions if they continued importing Iranian condensate. Iranian condensate is optimized for South Korean refinery facilities, costing up to US$6 per barrel less than condensate from other countries and boasting superior quality. The South Korean petrochemical industry now faces a near-certain rise in raw material costs even if it does find an alternative importation source for condensate. By Park Min-hee, staff reporter Please direct comments or questions to [english@hani.co.kr]
