The South Korean oil tanker seized by the Iranian authorities on Monday 4 January appears to be a collateral victim. A collateral victim of the pressure that Iran is trying to put on the United States in response to administrative sanctions against Iranian hydrocarbons. As a result of which, and not least, since 2018 Iranian revenues, the result of trade with Seoul, are frozen in South Korea. 7 billion USD are thus blocked.
This situation leads to an economic depreciation of Iran. This is accompanied, in addition, by a very complicated health situation related to Covid-19, especially in terms of availability of medicines. The United States is now negotiating with a weakened Iran, perhaps cornered, in short, in an explosive climate. A look at the Iranian-American-Korean situation.
Korean oil tanker seized against a background of embargo and financial blockage
The Korean tanker MT Hankuk Chemi and its crew were arrested in Iranian waters on January 4, 2021. The charge is violation of international environmental laws, namely pollution of the seabed.
From the beginning of this diplomatic crisis, Iran called on South Korea not to “politicize” the seizure of the ship. Iran thus reiterates its confidence in the justice system of its country to clarify the case. For its part, South Korea considers the situation “inadmissible” in the absence of formal evidence of environmental law violations by the Korean oil company.
Today, with the exception of the ship’s captain, the crew was released.
Iran seems to be conducting a particularly aggressive policy on the seas, especially since it controls the passage of the Strait of Hormuz. One-fifth of the world’s crude oil production and one-quarter of the world’s liquefied natural gas trade passes through it. Iran regularly threatens to close it. A decision that would have a catastrophic impact on the global economy.
7 billion dollars frozen in South Korea
But in reality, the arrest of the Korean oil tanker seems to be more about the economic situation between Iran and South Korea than about any real environmental violation. Iranian Deputy Foreign Minister Abbas Aragchi stated in this sense that:
“For about two and a half years, South Korean banks have been freezing Iranian funds…this is not acceptable. “from our perspective, the freezing of Iran’s foreign exchange resources in Korea is more attributable to the lack of political will on the part of the Korean government rather than to U.S. sanctions.”
Since 2018, USD$7 billion of Iranian assets are indeed blocked in South Korean banks. This is because of the implementation of U.S. sanctions in 2018 threatening countries trading with Iran. Therefore, all financial transactions with Iran are prohibited. Iranian oil under embargo.
By seizing the tanker, Iran is therefore pressing South Korea to release the blocked funds. Abbas Aragchi also asked his South Korean counterpart to find a “necessary mechanism” to resolve the issue as a “top priority” in bilateral relations. In sum, the situation of the blocked assets takes precedence over the seizure of the tanker.
This week, an agreement was finally reached between the Iranian and South Korean authorities to transfer certain assets. But the transfer is still subject to American approval.
Thus, part of the $1 billion that will be released will be conditional on the payment of Iran’s UN membership fees. The country currently has a backlog of $16 million. If the amount were to increase, his right to vote at the General Assembly would be called into question.
MT Hankuk Chemi a victim of US-Iran tensions
After the signing of theIran nuclear deal (Vienna) in 2015, Iran became the 3rd largest supplier of crude to South Korea in 2017. The country has also become the largest buyer of Iranian derivatives and gas. But following the 2018 U.S. exit from the agreement and subsequent administrative sanctions, Iranian-Korean relations have dried up.
First of all, the exchanges were reduced. Oil imports thus fell from 7.8 billion barrels/year in 2017 to 2.1 billion in 2019. In 2020, no imports were noted. At the same time, the South Koreans have lost contracts to manufacture Iranian oil tankers.
Same situation on the nuclear file
The other issue is nuclear power. In 2015, South Korean President Park Geun-Hye welcomed his signature. Seeing in this agreement a possible precedent for a denuclearization of the Korean peninsula.
Following this signature, Iran committed itself to a civilian-oriented nuclear program. But in 2018, Donald Trump then President, pulls the United States out of the agreement and puts sanctions back on Iran. Among other retaliation, the Gulf state restricted International Atomic Energy Agency (IAEA) inspections of its nuclear activities last week, before partially reversing its decision this week.
But in January 2020, Iran resumed its uranium enrichment program at 20%, exceeding the limits authorized by the Vienna agreement. The Iranian Foreign Ministry spokesman stated that these “measures by Iran were to preserve the agreement [sur le nucléaire iranien de 2017]. ”
Possible resumption of negotiations?
President Biden, on the other hand, has said he wants to resume discussions. He has accepted the invitation of the European Union (EU) to hold new talks.
However, the outcome of the Iranian presidential elections in June will determine the future of the negotiations. Nothing is won as conservatives and anti-western hardliners gain influence in the country.
Korean oil tanker seized to save Iranian people?
These tensions are then frozen in an Iranian economic climate intrinsically linked to its oil exports. These account for 50% of government revenue and provide 95% of foreign exchange in normal times. Currently, and despite the sanctions, outlets have been found in China, Iraq, but also Afghanistan.
Despite this, the reduction in trade has led to a rapid deterioration in the standard of living in Iran, with inflation and an explosion in unemployment. At the same time, the country is strongly affected by the Covid-19 health crisis. Unfreezing foreign assets would then be a way to finance vaccines.
Currently, there is only one effective mechanism to divert U.S. sanctions. This is the Swiss Humanitarian Trade Arrangement, which allows Swiss companies to send medicines and vital products. The European Instex system has not proven itself.
In short, Iran is on the verge of a health implosion, but also on the verge of a financial collapse. In fact, the country is banking on a rather aggressive policy, especially towards the United States and its first allies. And when Iran attacks South Korea, it is really attacking its first protégé. But also to the country caught between North Korea and China, economic and ideological enemies of the United States.
In short, Iran is moving closer to the Asian axis rather than the Western one. For his part, Biden is taking advantage of Donald Trump’s radical decision to renegotiate the terms of the Vienna agreement rather than re-enter it without conditions. In the middle, South Korea serves as a buffer.