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Thu 4 Aug 2011 08:55 AM

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Sanctions trap billions of Iran petrodollars in Korea

US moves to isolate Tehran over nuclear bid hurting efforts to pay for oil sales

Sanctions trap billions of Iran petrodollars in Korea
Iranian President Mahmoud Ahmadinejad. Countries that receive oil from Iran are struggling to make payments amid US sanctions

Iran could have nearly $5bn of cash trapped in South Korea
by the end of the year as sanctions stop it repatriating money from oil sales,
Korean government sources with direct knowledge of the situation said on
Wednesday.

Sanctions do not penalise non-US refiners from buying
Iranian crude, but they make it hard for foreign banks to pay the Islamic
Republic the hard currency that makes up around 50 percent of government
revenue. Just this week, Indian refiners began paying around $5bn of oil debts
after struggling for seven months to find a way to get money to Tehran.

Washington wants to isolate Tehran over its nuclear
programme, which it believes Iran is using to develop weapons. Tehran says it
needs nuclear power.

South Korea is one of Iran's top crude buyers, importing
around 230,000 barrels per day on average, based on total imports in the first
half of the year. Its refiners are paying Iran for oil into bank accounts in
South Korea.

The trapped cash pile has already reached up to 4 trillion
won ($3.82bn), according to one of the sources, who could not be named due to
the sensitivity of the issue. That could reach 5 trillion won ($4.76bn) by the
end of the year, the source added.

Seoul last year allowed Iran's central bank to open accounts
denominated in Korean won after South Korea blacklisted the Seoul branch of
Bank Mellat and 101 other Iranian companies as part of international sanctions
handed down over Iran's nuclear development plans.

Iran can use the won funds to buy goods from South Korea but
runs a trade surplus with Asia's fourth-largest economy amounting to around
$400m a month, according to official Korean data. South Korea has almost no
natural resources so is heavily dependent on oil imports.

A source at the South Korean central bank confirmed that
Iran cannot repatriate the funds due to international sanctions but declined to
confirm the amount.

"Iran's central bank keeps that money it has received
from Korean buyers, including oil refiners, hoping that it can bring out the
money later when sanctions are lifted," the source at the Bank of Korea
said by telephone.

"Iran's central bank cannot transfer won funds out of
South Korea even if we exchanged the money into other currencies because
international banks would not handle the transfer under the sanctions,"
the source said.

Iran's central bank has the won accounts at Industrial Bank
of Korea and Woori Bank, both owned by the Korean government.

Officials at the banks declined to comment.

South Korea, the world's fifth-largest crude oil importer,
bought about nine percent of its total crude imports of 2.54 million bpd from
Iran in the first half of the year, data from state-run Korea National Oil Corp
showed.

South Korea boosted imports of crude by some nine percent in
the first half of this year as refiners produced more fuel to plug a shortfall
in supply of oil products in the region after a quake and tsunami hit Japan in
March.

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