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The South Korean government recently sent a delegation to Iran in advance of the US’s complete resumption of sanctions against the country. and now it is planning to hold deliberations with the Trump administration in mid-July.
“The US has settled on Nov. 4 as the date when it will resume sanctions against Iran. and we think that this will have a major impact not only on petrochemicals but on the entire payment system for exports [between South Korea and Iran]. We’re currently working to arrange a second round of negotiations with the US in July.“ a senior official from the Ministry of Foreign Affairs said on July 4. The first round of deliberations with the US took place after the US’s announcement in May that it is reinstating sanctions on Iran.
“While our relationship with the US is important. our relationship with Iran is important. too. That’s why a government delegation visited Iran last week.“ the official said. While noting that Seoul has no choice but to take part in the sanctions. the official said that Seoul “intends to do its best in the negotiations in a bid to maintain relations with Iran.“
South Korean imports of Iranian crude oil linked to commodity exports to Iran
If the US asks its allies to completely halt imports of Iranian crude oil as of Nov. 4 as it is expected to do. this will inevitably inflict a severe blow on the South Korean economy. which relies heavily on Iranian crude oil. Currently. 13 percent of South Korea’s oil imports are from Iran. Condensate. which plays a critical role in the South Korean petrochemical industry. accounts for 73 percent of Iranian oil imports. and more than half (53 percent) of South Korea’s imported condensate comes from Iran.
It is also important to maintain the stability of Korean won-denominated accounts registered under the Central Bank of Iran at Woori Bank and other South Korean banks that South Korea and Iran currently use to handle import and export payments. This won-denominated payment system was introduced when sanctions were imposed on Iran in 2010 to ensure that South Korean importers and exporters can engage in smooth financial transactions with Iran. and it is still used today as a way to handle import and export payments between the two countries.
The accounts work as follows: South Korean oil refineries importing crude oil from Iran deposit their payment into these accounts while companies that export to Iran withdraw the money they are owed from the same accounts. If imports of Iranian crude oil are sharply reduced or suspended altogether when the US reinstates sanctions against Iran. the balance in these accounts could fall. which would basically leave South Korean companies exporting to Iran with no way to receive their payments.
This is the context for the remark by a government official that “a reduction [of imports of Iranian crude oil] is unavoidable. but the key of these negotiations is to minimize this reduction’s harm to the South Korean economy while convincing the US to grant an exception for the won-denominated payment system.“
When sanctions were imposed on Iran in 2012. the South Korean government was given a waiver after it substantially reduced its imports of Iranian crude oil. Once again. Seoul is planning to explain to the US the impact of Iranian crude oil on the South Korean economy in the hope of persuading the US to suspend part of the sanctions.
Global ripples of Trump administration’s withdrawal from Iran nuclear deal
In 2015. Iran entered into the Joint Comprehensive Plan of Action (widely called the Iranian nuclear deal) with the five permanent members of the UN Security Council plus Germany. As part of the deal. Iran agreed not to produce highly enriched uranium and weapons-grade plutonium for 15 years in exchange for the UN Security Council and the US lifting their economic sanctions on Iran.
But in May. Trump announced that the US would withdraw from the Iran nuclear deal and impose massive sanctions on Iran in November on the grounds that the deal is unable to stop Iran’s nuclear development. These sanctions cover Iranian petroleum and financial transactions and would revive secondary boycotts on companies and banks in other countries that do business with Iran. which has provoked criticism not only in Iran but around the world.
