Aletho News

What the Aggravation of the US-Iranian Relations Means for South Korea

By Konstantin Asmolov – New Eastern Outlook – 06.09.2019

Continuing to monitor the confrontation between Washington and Tehran, the author of this article can see how it affects the South Korean interests. The sanctions badly hit South Korea’s economy and, since the summer of 2019, there have been attempts to involve Seoul in a possible military coalition.

Let us remind the reader that the Joint Comprehensive Action Plan was signed by Iran, Russia, the United States, Germany, France, the United Kingdom and China in 2015, limiting Iran’s nuclear program in return for lifting the sanctions imposed by the European Union and the United Nations.

The removal of most of the international sanctions from Iran stimulated a great interest in its economy, as the country has huge gas and oil reserves, and Seoul took advantage of the opportunity to enter the Iranian market. After all, the South Korean exports to Iran exceeded $6 billion in 2012, however, after the imposition of sanctions by the Obama Administration, it fell to $4.5 billion. In 2016, it fell even more and, only in 2017 did export volume begin to recover.

On August 24, 2017 the South Korean Export-Import Bank and the Central Bank of Iran signed an agreement on a $9,380 million loan to the Iranian Government. In addition, South Korean companies were given the opportunity to participate in construction and resource projects in Iran, as the loan was aimed at providing financial support to those who would receive orders from the Iranian Government.

It should be noted that the arrangement to start negotiations on the loan agreement was made during the visit of the former South Korean President Park Geun-hye to Iran, but the final decision was delayed since the parties could not agree on the terms of repaying the loan in case of the resumption of sanctions should Iran fail to fulfil its obligations in the nuclear technology area.

But after Donald Trump came to power, the White House began to criticize the terms of the nuclear deal and later withdrew from it; in May 2018, the US resumed its sanctions against individuals and legal entities that carry out export transactions in gold, precious metals, graphite, coal, automotive and other industries with Iran. However, for some countries, there was a delay of 90 and 180 days depending on the type of sanctions.

The South Korean government wasted no time and convened an ad-hoc expert working group assigned to reduce the damage to the domestic companies caused by the US sanctions against Iran. The complications came from the fact that more than 80% of South Korean enterprises working with Iran were small and medium-sized businesses. However, with the reinstatement of sanctions, exports from South Korea to Iran decreased yet again. From January to June 2019, they fell by 15.4%, and by 19.4% in July.

The South Korean government also negotiated with the US calling on it to exempt crude oil from the sanctions, as it accounts for most of the imports from Iran. Under the Barack Obama Administration, South Korea received the status of an exception country entitled to buy Iranian crude oil under the sanctions with reducing its purchases by 20%.  The importance of Iranian oil imports to South Korea lies in the fact that it has a direct impact on the exports to Iran. Settlements with Iran are made using the Korean won bank account from which goods exported to Iran are also paid for. Therefore, a reduction in the Iranian oil imports will inevitably lead to a reduction in the exports.

Moreover, Seoul remains one of the largest importers of Iranian oil and gas condensate in Asia. As noted by Reuters, the supply of Iranian resources is critical to the South Korean petrochemical industry. South Korea greatly relies on the supply of condensate from Iran, which has a high content of naphtha being the basic raw material for the manufacturing of petroleum products.  Besides, the Iranian prices are the lowest. The difference can reach six dollars per barrel, so 50% of the condensate imported into South Korea comes from Iran.

According to an opinion, South Korea is the third largest buyer of Iranian oil.   On the other hand, Iran accounts for 8.6% of the oil imported into South Korea and it is the fifth largest oil supplier to South Korea after Saudi Arabia, Kuwait, the United States and Iraq.

On October 29, 2018 US Secretary of State Mike Pompeo and South Korean Foreign Minister Kang Kyung-wha exchanged their views of the issue of US sanctions against Iran during a telephone conversation. Kang Kyung-wha called on the American party to show flexibility in granting South Korea the status of an exception nation in the implementation of sanctions against Iran in order to minimize the damage to South Korean companies. She mentioned the repeated negotiations between the parties on this topic. Pompeo said the US was heeding the position of South Korea and would continue the dialogue.

On November 5, 2018 the second stage of sanctions aimed at stopping foreign currency inflows to Iran thanks to oil exports entered into force. This affects the interests of South Korea, Turkey and India, which actively cooperate with Iran in the oil sector.

While the May sanctions were mainly aimed at a secondary boycott, the second stage included direct sanctions on transactions related to oil, natural gas, petrochemical products, ports, energy facilities and shipbuilding. The sanctions apply to approximately 700 individuals and legal entities, aircraft, ships and other facilities.

However, for eight countries (South Korea, China, India, Italy, Greece, Japan, Taiwan and Turkey) the US made a temporary exemption of 180 days, as each of them had demonstrated a significant reduction in Iranian oil purchases over the previous six months. The US sanctions are aimed at reducing the profit that Iran receives from trade, so permits to carry out trade are issued in exchange for the promise to reduce the purchase of Iranian raw materials. Thus, it will be possible to avoid an increase in oil prices. However, the US Special Representative for Iran Brian H. Hook confirmed that the 180-day exemption would not be extended.

As a result of this decision, South Korea managed to avoid the worst possible scenario, but experts immediately noted that the impact on the economy would not be averted altogether. As a result, the authorities recommended that businesses pay attention to the exports of pharmaceutical products, household appliances and other goods that were not subject to sanctions.

Immediately after the introduction of sanctions, representatives of the South Korean government visited Iran to discuss mutual trade issues. It is pointed out that the parties touched upon the situation with the resumption of the US sanctions and the withdrawal of a number of countries from the ban on the import of Iranian oil. The Iranian party thanked South Korea for consulting it on the current situation.

On April 29, before the end of the exemption period, Deputy Prime Minister for Economy and Minister of Planning and Finance Hong Nam-ki said that the South Korean government would make every effort to stabilize the domestic prices of petroleum products, which may increase due to the ban on the purchase of Iranian oil imposed by the US.

The exemption period for the eight countries expired on May 2, 2019. Now, all of them had to look for other suppliers, given the threat of US sanctions, but the Turkish government reported that it was impossible to stop Iranian oil imports immediately and Beijing said it would not support the unilateral US sanctions considering the significant losses associated with the need to change the suppliers. The South Korean government, through various channels, tried to bring South Korea out of the Iranian sanctions regime, but it failed. Iraq, which was importing natural gas from Iran, asked the US to provide more time to find another supplier, but the request was denied. This situation, among other things, destabilized world oil prices.

On June 20, 2019 the South Korean delegation held talks with the US party on the trade with Iran. The South Koreans called on the US to assist in eliminating possible difficulties in the oil issue and to resolve the problems of South Korean companies working with Iran in humanitarian areas using the Korean currency accounts only. However, the request was de facto ignored.

On the other hand, as from the summer of 2019, South Korea has been increasingly involved in the US-led security coalition in the Strait of Hormuz, which is the only waterway connecting the Persian Gulf and the Indian Ocean between the Arabian Peninsula and Iran and serves as the key transport corridor for large oil-producing countries.

Washington has called on Seoul to participate in this coalition citing the importance of the Strait for South Korea as the main oil transportation corridor. On the other hand, South Korea closely cooperates with Iran in the economic sphere. In this regard, Iranian response measures cannot be ruled out.

On July 24, 2019 during his meeting with the national security advisor to the President of South Korea, Chung Eui-yong, John Bolton demanded not only an increase in the share of South Korea in maintenance costs of US troops, but also the deployment of South Korean naval forces in the Strait of Hormuz.

On July 28, a representative of the South Korean Ministry of Defense noted that the country was considering various options for joining the coalition to ensure security in the Strait of Hormuz, but, at the moment, no specific decisions on this topic had been taken and no official proposals from the US had been received either. However, given the issue of the security of South Korean vessels passing through the Strait of Hormuz, various options for sending a military contingent to the region are being considered, including the possibility of sending the Cheongye unit currently patrolling the Gulf of Aden.

On August 9, Seoul hosted a meeting of the heads of the defense ministries of South Korea and the United States, Jeong Kyeong-doo and Mark T. Esper. Korea Times notes that Mark Esper officially asked Korea to participate in the coalition, but, almost immediately after that, Iranian Foreign Ministry spokesman Seyyed Abbas Mousavi called on South Korea to remain neutral. Mousavi noted that Seoul was an economic partner and asked it to take into account the sensitivity of the issue. “Korea’s possible joining the coalition is not a very good signal for us, and it will complicate things.”

South Korean experts, however, immediately wrote that the government should take the US side. As Meiji University Professor of Political Science Sing Yeoul said, “Diplomacy is not about being praised by all countries. You often have to choose one country over another, even if it means that you have broken ties with the latter.”

On August 13, the 30th outfit of the Cheongye special unit of the South Korean Navy left the South Korean port of Busan for the Gulf of Aden for a 6-month patrolling. It was headed by the destroyer Gang Gam-chan.  The 300-strong army unit consists of a special force, including a submarine bomber team, a Navy Seal team, Marines and Navy pilots, who will protect South Korean vessels off the coast of Somalia and support ships of other countries in the nearby waters.

The experts began to discuss the possibility of this detachment joining the security coalition in the Strait of Hormuz, but agreed that the approval of the National Assembly was required for the redeployment of Cheongye to the Strait of Hormuz. It is said that this topic also emerged at the meeting of the defense ministers, and Jeong told Esper that South Korea was well aware of the importance of water area defense and was considering various options to protect its nationals and oil tankers in the region.

However, the destroyer should continue the unit’s mission in the Gulf of Aden and its possible role in the Strait of Hormuz was not considered during its preparation. However, the Gulf of Aden is four-day sail away from the Strait of Hormuz.

On August 21, the US Special Representative for Iran Brian H. Hook told KBS that joining the coalition would not necessarily mean sending troops and that dispatching naval and aviation equipment with the necessary personnel could be a solution. Furthermore, countries joining the coalition will be able to obtain information from the US on certain threats to merchant ship security.

The problem got another dimension in the context of the Japan-South Korean trade war. Mark Esper invited not only South Korea to join the US-led coalition, but also Japan, and it is a good question how the servicemen of the two countries are going to work together.

Thus, there is a possibility that, if a war with Iran is indeed going to happen, then, same as in Vietnam or Iraq, the South Korean military will also be involved. After all, it was not some conservative and pro-American puppet who sent troops to Iraq, but the democratic Roh Moo-hyun.

Konstantin Asmolov, PhD in History, Leading Research Fellow at the Centre for Korean Studies of the Institute of Far Eastern Studies of the Russian Academy of Sciences.

September 6, 2019 - Posted by aletho | Economics, Militarism, Wars for Israel | Korea, Sanctions against Iran, United States