May 21, 2012 11:44
The European Union has declined a request by Korea to exempt it from a ban on insurance of oil tankers transporting Iranian oil that begins in July. As a result, Korea may face a halt in imports of Iranian oil at the end of this month.
European countries have a monopoly on oil tanker insurance and are using the measure to pressure Iran over its nuclear program.
A Foreign Ministry official on Sunday said, "We held unofficial talks with France, which is adamant about sanctions against Iran, as well as with Italy and Spain, which import large volumes of Iranian oil, but there was no progress." Unless there is a breakthrough in the upcoming so-called P5 + 1 talks with Iran, which involve the five permanent member nations of the UN Security Council plus Germany, Korea will have to submit to the sanctions.
Without coverage by EU insurers, Korean refiners like SK Energy and Hyundai Oil Bank will be unable to operate tankers. "Since it typically takes 40 days to transport oil, with 10 days to load it and 30 days for the round trip, we will start to feel the impact at the end of May rather than from July," said a government official here.
The only other insurers of oil tankers are in the U.S. and have already stopped dealing with Iran. Refiners cannot afford the risk of operating an uninsured tanker that carries 2 million barrels of crude oil.
The Korean government has tried to find other ways of providing insurance and to replace domestic tankers with foreign vessels, but they will not be able to handle all imports of Iranian oil, which account for almost 10 percent of Korea's total crude imports.
According to a report compiled by financial authorities and obtained by the Chosun Ilbo, domestic oil prices would rise 10 to 20 percent if Iranian oil imports stop. That translates into a W200 (US$1=W1,171) increase per liter of gasoline. If the import ban drags on, small and mid-sized companies here, whose revenue for exports to Iran depends on the money Tehran earns from selling oil to Korean refiners, will be impacted heavily.
Last year, 2,151 Korean companies exported products to Iran, and 85 percent of them were SMEs whose annual exports amounted to less than $1 million. "In the worst case, we cannot rule out that many of them will go bankrupt," said an official at the Knowledge Economy Ministry.
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