Oil imports from Iran to dry up over reinsurance

Iranian oil imports to Korea are highly likely to stop starting next month.

Despite expectations that Korea would negotiate with EU officials for exemptions to some of the union’s sanctions on Iran, the attempt failed yesterday, according to sources within the Korean government.

The European Union decided to stand firm on its decision to prohibit reinsurance contracts on oil ships delivering Iranian oil starting next month.

“We requested that the EU extend the reinsurance, but we confirmed that the subject [to exempt Korea] was not even scheduled to be discussed at the EU foreign ministers’ conference [yesterday],” said an official at the Ministry of Knowledge Economy, who asked not to be named. “The EU’s sanctions toward Iran are set to be executed as planned.”

Two of the nation’s four refiners, SK Energy and Hyundai Oilbank, which have imported 10 and 20 percent of their crude oil from Iran respectively, said that they already had halted loading Iranian oil shipments early this month.

“Because whether the reinsurance could be continued wasn’t clear, we did not want to risk anything,” said an official at Hyundai Oilbank. “We are currently reviewing importing British Brant oil, but nothing is set yet.”

The country’s crude imports from Iran fell 40 percent last month from a year earlier, according to the Korea Customs Service.

The world’s fifth-largest oil importer purchased 550,714 metric tons of oil, which made up around 5 percent of Korea’s total crude imports in May.

The reinsurance that oil tankers are required to have is mostly offered by European companies.

Although it is possible to import Iranian oil because Korea was exempted from the U.S. sanctions on June 11, the deliveries cannot be made without reinsurance policies.

The government is set to discuss countermeasures today about where to import from.

“We don’t think there will be too many barriers to supply as the international oil market seems stable at the moment and the oil price is on the decrease,” said another official at the Ministry of Knowledge Economy.

If Iranian oil imports are suspended for too long, Korea’s exports to Iran, which reach around $6 billion a year, could be stopped as well.

As financial transactions with Iran have been prohibited since October 2010 due to a request by the U.S., Korean companies exporting to Iran have been receiving payments from oil companies through accounts set up at the local Woori Bank and Industrial Bank of Korea.

“When the oil imports payments are not deposited, the account can be empty by early next year,” said another government official.

Meanwhile, the United States exempted Korea from its sanctions two weeks ago for purchasing oil from Iran as Korea had made strong efforts to purchase less.

By Cho Min-geun, Lee Sun-min [summerlee@joongang.co.kr]