Experts warn of Korea’s economic losses from joining U.S.-led punitive action on TehranKorea’s joining of the U.S.-led sanctions against Iran will fan inflation and cause $7 billion in losses for exporters a year, international relations experts warned Tuesday.
Lee Hee-soo, a professor at Hanyang University, said the U.S. demand for Korea to reduce trade activities with Iran last week is the strongest push made in its 30 years of sanctions against Iran’s nuclear ambitions.
“Iran is the No. 1 market for Korean goods in the Middle East, and it has the biggest oil reserves in the world. Joining the U.S. to inflict greater pain on Iran will destabilize oil prices and hurt Korean exporters,” Lee said.
A U.S. delegation demanded Seoul end trade activities with Iran this month, putting at risk over $7 billion in annual exports from Korea and about 10 percent of its crude imports.
Lee’s comments come as policymakers struggle to minimize the possible fallout from implementing the sanctions. A newly signed U.S. law called the National Defense Authorization Act blocks all transactions with Iran and imposes sanctions on business making deals with the Iranian central bank starting March this year.
Korea, Asia’s fourth-largest economy, stands to lose up to $7.2 billion a year if the U.S. rejects the request to exempt major Korean companies from the sanctions, according to the Korea International Trade Association. More than 2,200 Korean companies export goods to Iran. Sales generated from Iran account for more than half of the overseas sales for 281 of them.
Robert Einhorn, the U.S. State Department adviser for nonproliferation and arms control, visited Korea’s Foreign Ministry, Finance Ministry and Knowledge Economy Ministry on Jan. 17 to turn up pressure on Seoul to reduce its oil imports from Iran, saying that its allies must unwind dealings with possible links to terrorist financing. It was the first time the U.S. demanded that Seoul reduce oil imports from Iran.
“Fully implementing the sanctions will undermine trade relations with the Middle Eastern economy. It is unfortunate because Korean goods have become increasingly popular in Iran with Korean dramas,” Lee said.
The Korean government has asked the U.S. to exempt major exporters from the sanctions and decided to reduce its oil imports from Iran “in steps.”
Park Ki-young, an energy expert at the Korea Investment & Securities, said reducing oil imports from Iran will worsen inflationary pressure.
“The Korean economy relies about 10 percent of its oil from Iran, and it takes time and money to replace that. The destructive pause there will undermine growth and raise prices for general goods and services here,” Park said.
The private Hyundai Economic Research Institute gave a projection of a worst case scenario. It predicted oil prices to exceed $160 a barrel if Iran closes the Strait of Hormuz, through which a fifth of the world’s crude is shipped, in retaliation for oil sanctions on Tehran. U.S. crude oil closed at $99.84 per barrel in New York on Monday.
By Cynthia J. Kim (
cynthiak@heraldcorp.com)
