U.S. President Donald Trump postponed the imposition of sanctions on Iran on January 12 (local time). 2,522 South Korean companies doing business with Iran breathed a sigh of relief. The U.S. President stressed that this is the last chance for the U.S. and Europe to improve the Joint Comprehensive Plan of Action (JCPOA).
The JCPOA was signed in July 2015 by the United States, Iran, Britain, France, Germany, China and Russia. It is to stop Iran’s nuclear weapon development by imposing no economic sanctions on Iran. According to local laws, the U.S. President is to make a determination every 90 days on whether Iran is in compliance with the agreement and make a determination every 120 days on whether to postpone the imposition or not.
The volume of trade between South Korea and Iran fell from US$17.426 billion to US$6.098 billion between 2011 and 2015. It rebounded in 2016 and reached US$11.153 billion last year. South Korea’s exports to and imports from Iran totaled US$3.695 billion and US$7.458 billion last year, respectively. The figures can be significantly affected once economic sanctions on Iran are resumed. The Korea Trade-Investment Promotion Agency (KOTRA) remarked that economic uncertainties related to Iran are still lingering with the U.S. President demanding an overhaul of the agreement for the last time.
According to the KOTRA, the volume of trade between South Korea and Iran fell by approximately 30% each year from 2012, when sanctions were put into effect in earnest, to 2015, when the JCPOA was signed. It also mentioned that the volume recorded in 2015 was a 10-year low. Once the sanctions are resumed, a large number of plant construction projects and energy development projects involving South Korean companies can take a direct hit.
Still, it is likely to take some time until actual sanctions after a cancellation of the agreement and much time will be needed for the Republican and Democratic Parties to reach a consensus on the issue. In addition, transactions between South Korean and Iranian companies are unlikely to be stopped immediately in that they are using an alternative payment system using won and euro. “Transactions will not be halted right away even if the sanctions are resumed and, as such, South Korean companies do not have to panic,” the KOTRA explained, adding, “The JCPOA is not a bilateral but a multilateral agreement, and thus its impact can be weaker than in the past even in the case of sanctions imposed by the U.S. alone.”