Seoul weights impact of Iran oil ban

The halting of oil imports from Iran is triggering fresh concerns over fuel inflation here. Korea Times photo by Bae Woo-han

Korea halts oil imports from Iran

Korea has halted crude imports from Iran in line with the sanctions led by the European Union (EU) aimed at thwarting Teheran’s nuclear ambitions, despite a warning from Iran that it would “reconsider” its relationship with Korea and imports of Korean products.

The Ministry of Knowledge Economy said Sunday the country has completely stopped importing oil from Iran as it was forced to do so because of EU sanctions.

European firms that insure 90 percent of the world’s tankers have been required to cease providing coverage for ships carrying Iranian oil anywhere in the world. Korea relies entirely on European companies for such insurance.

The import cut has immediately worried many citizens here about a possible oil price hike and slower recovery from the recession.

“I’m anxious about a sudden, rapid increase in gasoline prices due to the import halt,” said a computer engineer who commutes using by car during the week. “Another concern is that it could further slow the pace of the country’s economic recovery.”

The government has denied such negative prospects, saying the measure will have no immediate impact on the oil market as well as the local economy. The authorities added it will take all measures available to protect small and mid-sized exporters to Iran from any fallout from the suspension. More than 2,900 Korean companies trade with Iran as a key partner.

“In the face of sanctions against Iran, Korean refiners had already begun diversifying their imports and decreasing crude imports,” said Moon Jae-do, director of the knowledge economy ministry. “They will increase oil imports from Iraq, Kuwait, the United Arab Emirates (UAE) and Qatar, and shortfalls will be covered by supplies from other alternative sources.”

Citing studies by state-run think tanks, Moon predicted that oil prices will remain stable until the third quarter of this year but he added the government will stay alert for the worst case scenario that oil prices will fluctuate out of control as a result of the oil import cut and unstable oil supplies from alternative sources.

President Lee Myung-bak and Prime Minister Kim Hwang-sik visited several oil-exporting Middle East nations early this year and asked them to increase the volume of oil shipments to Korea, to which they responded positively.

Korea has tried hard to reduce its reliance on Iran when it comes to crude imports.

The Korea National Oil Corporation (KNOC) said the country’s imports of Iranian oil fell by nearly half in May from the previous month. Korea imported 3.96 million barrels of Iranian crude in May, down 47.3 percent from 7.53 million barrels in April, according to the KNOC.

It is the lowest monthly tally since October 2010 when the country bought 3.72 million barrels of oil from Iran.

Local refiners instead bought 5.38 million barrels of crude from the UAE, up 69.6 percent from the previous month, while oil shipments from Kuwait jumped 37.3 percent on-month to 13.3 million barrels and imports from Saudi Arabia rose 20.2 percent on-month, the company’s data showed.

Despite these efforts, it’s still too early to say that Korea has completely hedged for Iranian risks. Last Thursday Iranian Oil Minister Rostam Qasemi warned that Seoul’s oil imports cut would provide a strong motivation for Iran to “reconsider” its bilateral ties with Seoul.

“Iran is one of the major importers of Korean products. And in the eventuality that the policy of sanctioning Iranian oil is implemented, then that nation will suffer,” the minister said.

Iran is Korea’s third-largest trade market in the Middle East. Exports to Iran were up 32 percent from a year earlier to $6.07 billion in 2011. They were valued at $2.9 billion in the first five months of this year, a 40 percent rise from the same period a year earlier. <The Korea Times/Park Si-soo>

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