South Korea to restart Iranian oil imports

August 8, 2012

South Korean oil refiners said Wednesday they plan to restart imports of Iranian oil, saying that Tehran had offered to deliver crude on its own tankers and provide up to $1 billion worth of insurance coverage for the vessels.

South Korea, until last month the world’s fourth-largest buyer of Iranian crude, was the first Asian country to stop imports from Tehran because of a European Union insurance ban on tankers carrying Iranian crude, which came into force on July 1.

Refiners said Tehran had announced it would deliver crude on Iranian tankers and provide $1 billion insurance coverage on the vessels delivering to South Korea. The refiners said they were in talks with the National Iranian Tanker Co., a subsidiary of the National Iranian Oil Co., to sign a final deal soon but declined to elaborate on whether Iran had offered discounted prices for oil shipments.

“We’ve reached a basic agreement about resuming the shipments, but details have yet to be agreed,” SK Energy said. An official at Hyundai Oilbank said that company also expected a deal to be concluded shortly. SK and Hyundai are the only Korean refiners that import Iranian crude.

Mohammad-Ali Khatibi, director of international affairs at National Iranian Oil, on Wednesday neither denied nor confirmed the reports, saying talks were underway between Iran and South Korea but that “our decision is not to take the issue to the media.”

Industry officials say the shipments could resume as early as September, providing some relief to Tehran, which has seen a sharp drop in shipments to Asia in recent months because of international sanctions aimed at restricting its nuclear program.

Iran’s crude shipments halved in July to 1.1 million barrels a day from a year earlier as sanctions hit. Its major Asian customers — China, India, Japan and South Korea — have all been granted exemptions from U.S. sanctions after slashing imports from Iran this year. Japan is providing sovereign insurance to tankers carrying Iranian oil, while Tehran is trying to bypass the impact of Western sanctions by providing insurance and offering its own tankers for shipments to China and India.

It is unclear whether restarting the imports from Iran will affect the U.S. decision to grant Seoul a waiver, which is subject to review every six months.

“We are aware that oil refiners are in talks with Iran and discussing various options to resume oil imports,” said an official at South Korea’s Knowledge and Economy Ministry. “But it is only on a company level.”

South Korea’s imports of Iranian crude fell 17 percent to 190,000 barrels a day in the first half of 2012 compared with 2011. The country stopped buying crude oil from Iran last month when the E.U. insurance ban prevented Asian refiners from buying protection and indemnity insurance, known as P&I, in the London insurance market.

To make up shortfalls of crude, South Korea has been trying to import more from other Middle Eastern countries, including Iraq, the United Arab Emirates, Kuwait and Qatar.

Iranian crude supplies in July are estimated at an average 1,084 million barrels a day, down from 1,094 million barrels a day in June, according to the Geneva-based consultancy Petrologistics. The drop in exports, together with recent falls in global oil prices, is cutting Iran’s oil revenue. Oil accounts for the bulk of the country’s export earnings.

The West believes that Iran is seeking to develop nuclear weapons, although Tehran denies it.

— Financial Times

Monavar Khalaj contributed to this report.

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