As the US is set to end sanction exemptions for countries buying oil from Iran, South Korean petrochemical companies are anticipated to struggle in having to reduce their Iranian oil supplies.
From May 2, eight nations, including Korea, Japan, China and India, will be banned from buying oil from Iran as the US government’s 180-day waiver ends.
Iran is the fifth-largest exporter of crude oil to Korea, following Saudi Arabia, Kuwait, the US and Iraq. Imports of crude oil from Iran to Korea accounted for 8.6 percent of total imported crude oil in February, according to Korea National Oil Corp.
“We were a bit shocked. We didn’t expect a complete ban. Every company (affected) will be busy securing condensate, which is not abundant in the market,” said an anonymous official of a local firm in the petrochemical business.
Condensate — a form of ultralight oil used to produce petrochemicals — accounts for a majority of the crude oil from Iran. In January and February, condensate took up 100 percent of all imported crude oil from Iran.
SK Incheon Petrochem, Hyundai Chemical and Hanwha Total Petrochemical currently import condensate from Iran.
“We have relied on Iranian condensate because it is relatively cheaper given the quality. We may have to go to other suppliers, and it will affect price competitiveness,” said another official from a different petrochemical firm.
Industry watchers said Iranian condensate yields a large volume of naphtha, which can be used to produce petrochemicals used for electronics, automobiles, clothes and shoes. It is also $2 to $6 cheaper per barrel than crude oil produced in other oil-producing nations.
From May, the three firms and companies from the seven nations will have to seek alternatives from Qatar, Europe, Russia and Australia. Competition will raise the price of crude oil in the global market.
Shin Dong-chan, a lawyer at the firm Yulchon, said Korean firms are deemed “big players” in the crude oil market, and speculation that they are reviewing a certain country as a potential supplier would drive up costs.
“Although the three firms will suffer more setbacks from the sanctions, the surge in oil prices will also affect other industries — petroleum goods, electronics and automobiles. The recovery will depend on how other oil-producing countries help stabilize the oil market,” said Cho Sang-beom, a communication manager at the Korea Petroleum Association.
On Tuesday, Kim Yong-rae, vice minister of the Energy Ministry, convened an emergency meeting, urging the local petrochemical industry to diversify suppliers and secure alternative crude oil.
He also urged government organizations to support the industry with liquidity and to help them find alternative markets.
The Ministry of Foreign Affairs, for its part, explained that “officials from the related ministry will visit Washington this week” to figure out how to cooperate on the issue. The ministry official said it will accelerate efforts to reflect the nation’s stance before May 3 when an outright ban comes into effect.