South Korea has imposed curbs on exports to Iran - mainly steel, cars and electronics - to reduce its risk of payment defaults as western sanctions disrupt Iranian oil exports, highlighting the growing risk of doing business with the Islamic Republic.
The move to limit the trade exposure of Asia's fourth-largest economy, which sold $1.7 billion of goods in Iran in the first quarter of this year, was announced by South Korea's leading trade and business body and came into effect this week. Fresh export deals to Iran will be approved only if their payment period is within 180 days to reduce uncertainty in payment settlement, the Korea International Trade Association (KITA) said in a statement on its web site (www.kita.net). "This is temporary to prepare for the situation that Iranian crude imports do not go smoothly, and it will be lifted if the trading condition with Iran improves sharply," KITA said.
Western countries have stepped up sanctions on Iran over its nuclear programme, which Washington and its allies suspect is a cover for developing the capability to make an atomic bomb. Tehran says it is only interested in using nuclear power for generating electricity and other peaceful projects. KITA said there would be limits placed on settlements for South Korean exporters who receive payments from the Iranian central bank's won-denominated accounts held at local banks.
The trade group added the measure had been taken in advance of planned European Union sanctions on insuring Iranian oil tankers. It also came as South Korea secured an exemption from U.S. sanctions thanks to its cuts in oil imports from Iran. Export quotas could be imposed on products including Samsung Electronics' mobile phones and Hyundai Motor's vehicles, a source has told Reuters.
South Korea, a major buyer of Iranian crude along with China, India and Japan, managed to get U.S. exemptions on Iran's oil trade on Monday along with six other economies in return for significantly cutting purchases of Iranian oil. Still a bigger issue remains as it is not yet clear whether separate European sanctions blocking access to tanker insurance will cause shipments to grind to a halt from July 1.
Japan to pass insurance bill
Japan's lower house is set to pass a bill on Friday to provide government guarantees on insurance for Iranian crude cargoes, making it the first of Iran's big Asian buyers to find a way to keep the oil flowing in the face of EU sanctions.
The special insurance bill is expected to go through the upper house and become law before the parliamentary session ends on June 21, the Yomiuri newspaper reported on Thursday. Iranian oil accounted for nearly 9 percent of Japan's crude imports last year. Japan has reduced the flow already to comply with U.S. sanctions, but wants to avoid more drastic reductions that may drive up energy import costs.
Japan won a waiver from U.S. sanctions for those cuts, which refiners enacted even as they dealt with an increase in overall oil demand after last year's Fukushima disaster shut down the country's nuclear power stations. Industry sources said that Korean refiners will halt Iranian oil imports from July.
International sanctions have already made it difficult for Iran to repatriate oil payments from South Korea and other countries. South Korea imported 25.25 million barrels of oil from Iran in January-April of 2012, down about 10 percent from a year ago, according to state-run Korea National Oil Corp (KNOC).
India, China face same issue
India's government, which also won an exemption to U.S. sanctions, has yet to figure out how it will get around the EU sanctions.
"We are struggling to find solutions," Oil Minister S. Jaipal Reddy said, adding that the government was studying sovereign guarantees. Without government intervention, India's state-owned refiners will halt 173,000 barrels per day (bpd) of planned imports from Iran in July, industry sources said this week.Iran's top buyer China has yet to detail how it plans to resolve the insurance problem, but industry sources there have said they will find a way to keep imports flowing.
The International Energy Agency said on Tuesday that Iran's crude exports in April and May have fallen by 1 million bpd since the end of 2011 to 1.5 million bpd and that Tehran may need to shut in production. China, Japan, India and South Korea have cut purchases by about a fifth from the 1.45 million bpd they were buying a year ago ahead of the imposition of the sanctions.
Tehran has denied it is experiencing problems with oil sales despite mounting evidence its major customers, including China, are turning down offers of cheap crude.