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We have reported extensively on the Iranian sanctions because they may establish precedents or what we call “sanctions technologies” that would come up with respect to North Korea. However, the recent sanctions on Iranian crude exports also affect South Korea, which said last week that it will halt all oil imports from the country on the July 1 schedule. The problem for South Korea is that EU firms provide insurance for 100% of Iranian oil shipments to the country; EU financial sanctions effectively cut off all of these insurance services, thus making trade impossible.
South Korea is the only Asian country to date to state it will suspend all shipments. According to the Wall Street Journal, India and Japan are seeking work-arounds. For example, India might allow shipments in Iranian vessels and Japan has passed legislation that would allow it to provide its own insurance coverage.
The issue is further complicated by extraterritorial provisions of US sanctions legislation that could target those that engage in prohibited trade with Iran; in addition to the post linked above, CNN has a useful update. Under legislation signed by President Obama in December, the United States can limit foreign financial institutions’ access to the US market if they engage in oil-related transactions with the Iranian central bank.
This legislation was so draconian that it generated an exemptions process. South Korea was one of the countries receiving an exemption, but it did not help given the insurance constraint. Just prior to the July 1 deadline, China and Singapore were granted short-leash exemptions, bringing the total number of countries with exemptions to 20. However, the exemptions were granted in part because China had already reduced oil imports from Iran—most likely as a result of a contractual dispute—and because Singapore is devising its own restrictions.
South Korea historically has relied on Iran for about 10 percent of total supplies and has scrambled to diversify by securing new contracts from Iraq, Kuwait, Qatar and the United Arab Emirates. But South Korea’s other business with Iran is also booming. According to Yonhap, Iran is now South Koreas third-largest Middle East trading partner, an irony given ongoing reports of strong North Korea-Iran nuclear and missile connections.
Tehran is likely to go after such potential weak links. In another article, Yonhap reports that Iran is now considering an “embargo” on imports from South Korea in response.
