Seoul’s awkward dance on Iranian oil

The Wall Street Journal

After months of talks with the US and European Union about the impact of sanctions targeted at Tehran on shipments of oil to South Korea from Iran, Seoul halted those imports on July 1.

Sorry, we should say that oil imports from Iran “came to a halt.”

The difference is important for the South Korean government, which is now engaged in an awkward dance as it considers its options to cover the shortfall.

Unlike its equally energy hungry neighbor Japan, South Korea can’t afford state guarantees on shipments of oil from Iran to replace the now-banned European insurance cover on Korean shipments of oil from Iran.

With few options to cheaply substitute Iranian crude, one possibility is a resumption of crude imports from Iran, but on Iranian ships. Tehran has reportedly offered its own ships to several countries for oil imports.

A Korean government official said Tuesday that Seoul is studying various options and using Iranian tankers is “one of the options being considered.”

As it ponder using Iran’s ships, South Korea appears keen not to rile Iran, whose oil minister was quoted last week as saying that Tehran would “reconsider relations” if Seoul completely cuts off its oil imports.

That caution may help explain why the Ministry of Knowledge Economy, which handles energy policy, was keen to ensure its message about the suspension of imports was delivered precisely. After its initial statement on June 26 about Iranian crude, the ministry followed up with a clarification a day later.

The original statement “doesn’t state or indicate that the South Korean government has decided to halt, suspend or impose a ban on imports of Iranian oil. However, these imports will inevitably come to a halt as a result of the EU insurance ban,” the ministry said.

Any decision to import crude on Iranian tankers would in turn put a strain on relations with close ally the US, as well as the EU. As western nations seek to increase pressure on Iran because of its suspected nuclear weapons program, South Korea is unlikely to want to be seen as not playing ball, particularly with its own erratic nuclear cousin to the north.

South Korea isn’t the only country considering using Iranian ships. India is another and may be closer to a decision. Late last month India’s oil minister said that the ministry had asked the shipping ministry to allow refiners to import crude from Iran in Iranian ships.

The Korean official indicated last week that the Indian decision would be a guide for how to handle the issue. “(We’ll) see how India goes about this,” he said.

In the meantime, Seoul remains stuck in the land of awkward options to replace its lost Iranian crude.