Trump’s “Maximum Pressure” on Iran Is Hammering South Korea Hard
Its giant export-oriented refineries find themselves underfed and having to pay through the nose for less suitable US alternatives
In the wake of new sanctions against Iran, South Korean refineries are struggling to find alternative sources of condensate supply to replace the sizeable volume previously imported from Iran. The ultra-light oil is prized by the country’s refiners as an essential raw material for its petrochemicals industry. The hidden cost of substituting for US condensate will not be small and Seoul must encourage its conservative oil refineries to be open to diversifying supply sources.
According to the US Energy Information Administration, in 2017 South Korea imported approximately 3 million barrels per day (mb/d) of crude oil and condensate, making it the fifth-largest importer in the world. South Korea also consumed 2.7 mb/d of petroleum and other liquids. Three of the 10 largest crude oil refineries in the world are located in South Korea, making it one of Asia’s largest petroleum product exporters. Due to its domestic oil production capacity, South Korea is highly dependent on the Middle East’s oil supply and the region accounted for more than 82 per cent of South Korea’s 2017 crude oil imports.
To comply with US sanctions, South Korea had to adjust its crude oil import volume. Crude oil imports from Iran were reduced from 10 per cent in 2011 to 4 per cent by 2015. South Korea’s lost imports from Iran were replaced by Russia and Middle Eastern suppliers such as Iraq, Qatar and the United Arab Emirates.
When sanctions on Iran were lifted in 2016, South Korea began increasing shipments of condensate again. Iranian crude oil and condensate rebounded to 12 per cent of South Korea’s imports by 2017. But South Korea was forced to reduce its imports from Iran again during the first half of 2018, partly because Iranian production temporarily declined. South Korea has no choice but to seek alternative sources of global condensates as feedstock for its condensate splitters and petrochemical industry.
In May 2019, the United States halted oil sanction waivers for countries — including major customers in China, India, South Korea and Japan — that had been allowed to buy Iranian barrels despite the US ban on exports. As a result, Iran’s oil exports have fallen sharply from nearly 2 mb/d in March to as low as 0.4 mb/d in May, the bulk of which is heading to Asia.
Before US sanctions were imposed, South Korea was the biggest importer of Iranian condensate. Asian customers favour Iran’s South Pars condensate for its rich yield of naphtha, a raw material that is a key feedstock for the petrochemical industry. Moreover, South Korean buyers have preferred Iranian condensate over Qatari condensate because of its relatively cheaper price. In 2018, South Korea bought and tested 23 different types of condensate from 15 countries as possible substitutes for Iranian condensate at a cost of about US$9 billion.
South Korean oil refiners — SK Incheon Petrochem Co., Ltd., Hyundai Oilbank Corp and Hanwha Total Petrochemical — must now scour the world for alternative but more expensive condensate supplies and secure heavy naphtha oil products for their processing units, known as splitters. South Korean splitters are designed to process condensate from Qatar and Iran, which are low in sulphur and produce no residue.
The United States is reportedly pushing its condensate on South Korea, for which Seoul has to reconfigure its refineries that are built to process Iranian grades. South Korea’s crude oil imports from the United States grew five-fold to 1.45 million tons in April. But South Korean buyers are concerned that the end of US waivers on Iran will drive up petrochemical production costs, making them less competitive in the face of increasing supply from China.
To help refiners source alternative supplies, an energy ministry official stated that the South Korean government plans to extend freight rebates for shipments of non-Middle Eastern crude oil until 2021. Seoul should identify which supplier countries are the biggest beneficiaries of freight incentives and encourage the more conservative South Korean refineries to be more adventurous in diversifying their supply sources.
US sanctions against Iran put South Korea in a very difficult situation. If the current situation is sustained, the US crude suppliers exporting to Asia will be sole beneficiaries. The hidden cost of replacing Iran’s condensate supply to Asian consumers, particularly in South Korea, will not be small. As US President Donald Trump is calling for Asian countries to protect their oil supplies in the Middle East, it is safe to say the time of ‘service free of charge’ under the name of US–South Korea alliance is long gone.
It was reported that South Korea plans to join a US-led maritime force in the Middle East by sending a naval unit to help guard oil tankers sailing through the Strait of Hormuz. The decision to support the US initiative in the Strait can be seen as the price Seoul has to bear for its crude oil supply security. But Seoul must ask whether replacing Iranian condensate supply with US supply will be good enough. South Korean refineries are notoriously conservative when it comes to exploring new suppliers. Entering unfamiliar waters was once inconceivable for South Korean refineries but the time has come for them to be more open to diversifying their supply sources.
Source: The National Interest
Korea is paying for the bowing and kowtowing and bootlickery to the American hegemony dearly
SK can make up the funds by charging GI’s twenty times the price for a beer, or anything else.
So isn’t it interesting that the US sanctions on Iran have made it possible for South Korea to now be able to purchase the more expensive American crude!! (A dream come true!). What a smooth move, Washington! And they say hegemony won’t happen!! Whaaat? It has happened (just not 100% yet)….the US sanctions and countries’ responses to them is proof positive!! The lambs follow the judas goat to slaughter would be a perfect analogy here..
South Korea should be freed, no longer be a Red Shield Via the USA/DC occupation country, (colony).
After all, why should a tiny place surrounded by yankee land, have a colony the size of South Korea?
This is the USA folks
You will notice however, they are claiming land they stole from cousin Lee.
That’s what you get for being America’s bitch.
America will effectively strongarm you to buy their overpriced oil, which is not competitive with Iranian crude.
So much for Anglo Americans’ “free market” values that they are always running their mouths about.
Why try to compete in the open market when you can game the system like America does with economic sanctions and its other forms of market manipulation?