Writer: Kyle Ferrier, KEI
Iran’s seizure of the South Korean oil tanker the MT Hankuk Chemi in early January is undoubtedly linked to Tehran’s immobilised funds in Seoul. It is usually clear that the dispute would require Washington’s involvement in a technique or one other to be resolved. What that may seem like and when it would come continues to be not sure, however the longer it takes the more severe off South Korea will likely be.
On the core of the difficulty is former US President Donald Trump’s withdrawal from the Iran nuclear deal, formally generally known as the Joint Complete Plan of Motion (JCPOA). Negotiated below his predecessor, the settlement offered Iran worldwide sanctions aid in alternate for dismantling most of its nuclear program. Though most specialists agreed the deal was working as supposed, Trump withdrew america from the JCPOA in 2018, claiming it didn’t go far sufficient to forestall Iran from growing nuclear weapons.
With the US withdrawal got here not solely the reimposition of sanctions on Iran, but additionally the specter of secondary sanctions on different international locations discovered to be buying and selling with Iran, together with people who have been nonetheless signatory to the settlement.
For South Korea, Iran had develop into an vital financial associate within the years when it had entry to international markets. In 2015, the 12 months earlier than the JCPOA went into impact, South Korea imported 5.7 million tons of oil from Iran, however by 2017 this had shot as much as 18 million tons, making Iran certainly one of South Korea’s high three sources of oil.
Beneath a scheme arrange in 2010, these commerce funds have been settled by means of won-denominated accounts owned by the Central Financial institution of Iran at two South Korean banks. Even with forewarning and exemptions that allowed Seoul to import Iranian oil for almost a 12 months after Trump terminated US participation within the JCPOA, when the spigot was turned off about US$7 billion was left within the account.
With out vital progress within the negotiations to get these funds returned, Tehran has by all accounts seized the ship as leverage to stress Seoul, however the principle stumbling block continues to be Washington.
Iran and South Korea have reportedly labored out that Iran can use the funds to buy COVID-19 vaccines by means of the COVAX Facility with particular approval from the US Treasury, although this has but to occur and it’s unclear precisely why. Iranian officers declare the South Korean banks are cautious of being focused by US sanctions whereas South Korean officers counsel Tehran is the one that’s hesitant to behave. Both means, the worry of US sanctions is the principle downside.
To make certain, South Korea has come nowhere near affected by these sanctions as a lot as Iran has, however Seoul has nonetheless taken a monetary hit and want to resolve the present standstill as shortly and amicably as attainable.
Along with shedding a significant supply of power and inputs for its petrochemical trade, South Korean corporations misplaced profitable contracts to modernise Iran’s oil and fuel services and oil tanker fleet. Promising small enterprise cooperation in high-tech fields additionally floor to a halt. If the present predicament drags on and leaves a blemish on Tehran’s notion of the nation, South Korean companies may very well be severely deprived if and when sanctions are lifted.
On this sense, the brand new Biden administration’s curiosity in re-entering the JCPOA is actually a welcome change. However it might wind up taking longer than beforehand thought.
Over the previous 12 months, Iran and america, with the assistance of Israel, have engaged in a collection of escalating provocations just lately culminating in Tehran ramping up its uranium enrichment and the assassination of a high Iranian nuclear scientist doubtless by the hands of Israel. All of those developments have sophisticated the timeline and circumstances for a US return.
Throughout their affirmation hearings, Biden’s picks for Secretary of State and Director of Nationwide Intelligence every acknowledged Washington was a ‘great distance’ from re-joining the JCPOA. Moreover, each the Biden administration and Tehran need the opposite to be in compliance earlier than returning to deal, and even then america may search to leverage this compliance to handle different areas of concern resembling Iran’s missile program.
Seoul is trying to different diplomatic channels for assist — together with reaching out to certainly one of Iran’s closest companions, Qatar — although it might be higher served by elevating its efforts with america.
Whereas it has been reported that the US Treasury has granted sanctions exemptions for Iran’s funds in South Korea for use for the coronavirus vaccine, there haven’t been any main public statements that would assuage the fears of both Tehran or the 2 South Korean banks. Progress in closed-door talks with america are apparently behind Iran’s choice in early February to launch the ship’s crew, however getting a high-level assertion out within the open will doubtless be crucial for the protected return of the ship and its captain.
Securing such a public message out may assist carry this unlucky chapter in Iran–South Korea relations to a fast and agreeable shut and should even assist to open a brand new one for america and Iran. Amid its personal standoff with Iran as to who will transfer in the direction of compliance first, Washington may use this pronouncement as a low-cost goodwill gesture with Tehran to begin constructing diplomatic momentum.
Kyle Ferrier is a Fellow and Director of Educational Affairs on the Korea Financial Institute of America (KEI).
All views expressed within the article are the creator’s personal and don’t essentially mirror these of any establishment or organisation.