Korea exempt from US sanctions on Iran oil trade

The U.S. announced Monday that Korea is exempt from U.S. sanctions on the Iranian oil industry that takes effect June 28. The exemption could be extended after six months if Seoul demonstrates further reduction of its crude oil trade with the Mideast country.

Nevertheless, the global supply of crude oil will remain volatile because the European Union plans to suspend insurance for tankers carrying Iranian oil from July 1. The Korean government expects the move`s impact on domestic gas prices to be minimal since international oil prices have remained stable and Korean oil refineries are increasing crude oil imports from elsewhere.

○ Obstacles ahead despite waiver

The U.S. State Department included Korea on its list of seven economies granted exemption from the latest oil sanctions against Iran pursuant to the National Defense Authorization Act. Washington approved the law in January to ban foreign financial institutions doing business with Iranian banks in crude oil imports from making financial transactions with the U.S.

In an official statement, U.S. Secretary of State Hillary Clinton said the seven countries -- India, Malaysia, Korea, South Africa, Sri Lanka, Turkey and Taiwan -- have significantly reduced imports of Iranian crude oil. Their 180-day break will be submitted to Congress, she added.

The Korean Embassy in Washington said it was notified of the exemption from the State Department.

The latest sanctions seek to halt Iranian efforts to secure nuclear weapons and abide by international rules, Clinton said. The seven countries follow 11 countries (10 in the EU and Japan) that were exempt from the same sanctions in March.

The Korean government and companies remain worried over the EU`s Iran shipping insurance ban, however, because large oil tankers will inevitably stop operations for fear of accidents that could incur huge losses. Large oil tankers going to and from Iran stopped operations early this month.

A negotiating team was recently formed with participation of officials from the Korean ministries of knowledge economy, foreign affairs and trade, and strategy and finance for talks with European countries, but in vain. The Foreign Ministry expects the U.S. government`s latest measure to help the Korean team gain better bargaining power. The government is also examining the provision of insurance if talks with the EU fail.

Japan enacted a law to pay 7.6 billion U.S. dollars worth of shipping insurance and submitted it to parliament Tuesday.

○ Little impact on domestic gas prices

The Korean government is reluctant to disclose the amount of crude oil imports that will be reduced from the U.S. exemption, citing diplomatic reasons. Oil refinery companies estimate a cut of 15 percent. According to the Korea National Oil Corp., imports of Iranian crude oil reached 25.25 million barrels between January and April this year, down 10.1 percent from last year`s 28.1 million barrels.

Domestic oil refiners remain optimistic, however, as they have secured enough alternative sources for imports including Saudi Arabia and Qatar.

Falling oil demand due to the eurozone debt crisis has helped the downward stabilization of international oil prices. The Korean government said the potential EU ban on Iran shipping insurance will have limited impact on Korea`s gas prices.

The price of Dubai crude oil, which accounts for 80 percent of Korea`s crude oil imports, has dropped to below 100 dollars per barrel, the lowest level in eight months. Accordingly, the average gas price in Korea was 1,985.72 won per liter Monday, dropping for the 15th consecutive day.

To prepare for full suspension of oil imports from Iran due to the EU ban, the Knowledge Economy Ministry has selected alternative sources of oil imports and will consider participating in oil spot markets and using oil reserves if problems escalate further.

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