Iran sanctions a Korean conundrum

The Seoul branch of Bank Mellat in Daechi-dong, southern Seoul. [YONHAP]

An attempt by the U.S. to bundle North Korea and Iran together in its latest round of sanctions against nuclear proliferators is a serious conundrum for South Korea.

In principle, the government agrees with sanctions on both countries. But in the case of Iran, Korea experts warn that enthusiastic support for sanctions will cause more business losses than political gains.

Iran is one of the biggest importers of South Korean goods in the Middle East. Around 20 local companies exported $4 billion worth of goods to Iran last year.

In 2004, Iran banned imports from South Korea for several months after Seoul voted in favor of an International Atomic Energy Agency (IAEA) resolution.

U.S. envoys led by Robert Einhorn, the State Department’s special adviser for nonproliferation and arms control, came here earlier this week and described more details of the imminent sanctions on North Korea.

At the same time, the U.S. requested South Korea increase pressure on Iran. Einhorn and Daniel Glaser, U.S. Deputy Assistant Treasury Secretary, met Finance Ministry officials on Tuesday to seek cooperation on the sanctions on Tehran.

“We suggested to the South Korean government that they take a look at what the Europeans have done, and look at that as a kind of very positive example, and to consider whether it could adopt similar kinds of measures,” said Einhorn during a press conference in Seoul on Monday.

On July 26, the European Union imposed new sanctions on Iran to cut financing for its natural gas sectors, following fresh UN Security Council sanctions earlier in the month.

Some sources with knowledge of the meeting between Einhorn and Finance Ministry officials said the request included shutting down the local branch of Bank Mellat, the only Iranian bank operating in Korea.

The government said that though it agrees with the U.S. strengthening of sanctions on Iran, nothing has been determined as to how it will cooperate, including the fate of Bank Mellat in Korea.

The business community says it has already been affected by the sanctions on Iran and is concerned about further losses.

Local companies - especially in steel, chemical and cars - are exporting to Iran, and they have encountered difficulty sending money to and from Iran since the July UN sanctions on the country.

Some local banks have pre-emptively stopped transactions with Bank Mellat.

“Many Korean companies in Iran are already complaining of significant difficulty with financial settlements with Iran since the UN sanctions last month,” said Yun Seo-young, a researcher at the Korean Institute for International Economic Policy. “If the government takes any measure against the bank, regardless of the impact, it could highlight Korea’s turning its back on Iran and hurt Korean business in Iran in general.”

Meanwhile, local financial authorities said in June that they were investigating the Seoul branch of Bank Mellat, as part of regular inspections targeting small-sized banks.

By Moon Gwang-lip, Kang Chan-ho [joe@joongang.co.kr]