South Korea Considering Resuming Iran Oil Imports: Gov’t. Sources

By Meeyoung Cho | July 13, 2012

South Korea will soon decide on whether to resume Iranian crude imports after Tehran offered to ship and insure the oil to get around the impact of EU sanctions, two Korean government sources said on Friday.

The EU oil embargo and U.S. sanctions aim to choke the flow of petrodollars into Iran’s economy and force Tehran to curb its nuclear program. The West suspects Tehran aims to develop weapons, while Iran says it needs reactors for electricity.

South Korea, previously among Iran’s top five crude buyers, halted imports in July as the EU sanctions stopped companies that dominate global maritime insurance from offering coverage on Iranian shipments.

“The South Korean government will not drag its feet, and the decision on importing oil from Iran will be made soon,” one of the sources with direct knowledge of the matter told Reuters by phone. The source declined to be identified due to the sensitivity of the matter.

Tehran has offered to provide up to $1 billion of insurance cover to Iranian vessels carrying oil to South Korea, the first source said. Seoul is “considering accepting” Iran’s offer, the other source said.

A resumption in South Korean imports would be a boon for Iran, as scheduled exports for July have plummeted to about half the levels of a year ago due to the sanctions.

Japan, another of Iran’s biggest crude buyers in Asia, has provided state guarantees to its insurers to cover imports of Iranian crude. Japanese shippers have yet to lift any Iranian crude in July, but are expected to do so in the last few days of the month.

South Korea would prefer not to deploy a scheme similar to Japan’s due to the cost, one source said. “A state guarantee like Japan is too costly, although that can be neat,” he said.

Insurers in Japan, Iran’s third-biggest oil buyer, are expanding their maritime coverage to allow domestic tankers to transport Iranian crude.

Among other key Asian buyers of Iranian crude, India has given state-run insurers approval to provide limited cover to its ships transporting Iran’s oil, while imports to China are mired in a dispute over freight terms.

END-AUG OR SEPT LIFTINGS AT THE EARLIEST
If Seoul resumes crude imports from Iran, it would be for end-August or September-lifting cargoes at the earliest, government and industry sources said.

Of South Korea’s four refiners, only SK Energy and Hyundai Oilbank import Iranian crude. It was not clear yet if they face penalty payments for reneging on their contracts to buy 200,000 barrels per day (bpd) of Iranian oil in 2012, industry sources said, adding they were hoping the halt would be temporary.

“We can only discuss with NIOC once the government gives the go-ahead and insurance issues are resolved. We haven’t discussed (freight) payments yet,” a source at one of the two refiners said, referring to Iran’s main oil shipper, the National Iranian Oil Company.

The refiner has already bought the crude it needs through August from other suppliers, the source said.

South Korea imported 29.22 million barrels of crude from Iran during the first five months of the year, or about 192,000 barrels per day, down almost 16 percent from a year ago. June import data will be available later this month.

South Korea, Asia’s fourth-largest economy, has no natural resources and has been scrambling for alternative crude supplies to replace those from Iran, which supplied 9.4 percent of its needs in 2011.

(Editing by Himani Sarkar)

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