Korean Economy News
S. Korea gets an exemption on Iranian oil imports

Lee Je-cheol and Lee Eun-joo

South Korea along with seven other countries have been granted temporary waivers on Iranian oil imports from the U.S. that on Monday renewed all sanctions against Iran to pressure the Middle Eastern country to curb its nuclear ambition.

The news has relieved Korean refiners and chemical companies that heavily rely on Iranian condensate imports, but uncertainties remain because the Korean government has to renegotiate with the U.S. to extend the exemption after a grace period of 180 days, and other local sectors are not exempted from the sanctions.

The United States on Monday re-imposed sanctions against Iran after U.S. President Donald Trump in May withdrew from a nuclear deal signed by his predecessor Barack Obama in 2015. The lately reinstated sanctions that aim oil, shipping and banking industries also include secondary boycotts in which non-U.S. companies and individuals trading with Iran are affected.

But the U.S. granted eight countries including Korea, China, Japan, Taiwan, India, Italy, Greece, and Turkey exemptions from the renewed embargo on Iranian oil imports, giving them a grace period of up to 180 days under U.S. law, U.S. Secretary of State Michael Pompeo announced. The exemption will be applied to not only Iranian oil imports but also financial transaction activities necessary in oil transportation and payment. The countries can renegotiate with the U.S. to extend the waivers after making utmost efforts over the next 180 days to reduce their imports of Iranian oil.

The latest exemption will allow Korea not only to continue to import Iranian oil but also to maintain the financial transaction system with Iran. The biggest winners of the latest move are Korean refiners and chemical companies that heavily rely on Iranian condensates, ultra-light oil that is the key materials for their petrochemical products. Whereas intermediate crude oil can be easily imported from alternative countries, it is hard to replace Iranian condensates.

As of the end of last year, Iranian oil accounted for 13 percent or 147.8 million barrels of Korea’s total oil imports. Of them, 74 percent or 109.4 million barrels were condensates, according to the Korean government data.

But most Korean industries, except the refining and chemical sectors, will immediately take a hit from the renewed sanctions by Washington against Teheran. In particular, Korean construction firms will likely suffer the most from the sanctions, with their several construction projects in Iran already being called off even before final contracts.

According to multiple sources from the construction industry, three major Korean engineering companies - Hyundai Engineering Co., Daelim Industrial Co., and SK Construction Inc. - won orders from Iran worth combined 7.7 trillion won ($6.85 billion). Of them, contracts for Daelim Industrial’s Isfahan Oil Refinery project worth 2.23 trillion won and Hyundai Engineering’s South Pars gas field expansion project worth 3.80 trillion won have been cancelled in June and October, respectively, after Trump in May pulled out from the historic nuclear deal signed between Iran and world powers.

The renewed sanctions that include Iran’s petrochemical and petrochemical products and energy sectors in addition to automobile, steel, and software sectors, are widely expected to deal a big blow to related industries in Korea. Right after the previous sanctions on Iran were lifted under the deal reached in 2015, Korean companies aggressively sought to renew their businesses in Iran.

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