Crude Oil Imports from Iran Declining Rapidly

Crude oil imports from Iran to South Korea are rapidly decreasing due to U.S. sanctions on Iran and Iran’s export control for domestic consumption. A significant drop in the imports from Irean, which account for approximately 10% of South Korea’s total crude oil imports, may have a negative impact on South Korean oil companies’ profitability and bargaining power.

According to the Korea National Oil Corporation, the imports from Iran totaled about six million barrels in May this year whereas the amount was 10.011 million barrels in the previous month. For reference, the amount had been 8.231 million barrels in May 2017.

This can be attributed to the Iranian government’s condensate export control for preferential supply to Iranian companies. In addition, South Korean oil companies are currently diversifying their import sources amid the sanctions.

Under the circumstances, crude oil imports from the United States and Iraq are showing a substantial increase. In May this year, the amounts added up to 3.161 million barrels and 13.484 million barrels, up 217% and 49.7% from a year ago, respectively.

The decline in imports from Iran is predicted to accelerate for the time being as the U.S. government recently asked its allies not to import any crude oil from Iran starting from November this year. South Korean oil companies are likely to take a direct hit if the South Korean government decides to comply with the request. At present, Iranian crude oil accounts for about 10% of South Korea’s total crude oil imports and the ratio is close to 50% when it comes to condensate. The companies prefer condensate from Iran as it is inexpensive yet very rich in naphtha. The companies’ bargaining power can also be affected as they have to find alternatives with their crude oil imports constantly on the rise.
 

The U.S. made an exception for South Korean oil companies back in 2012 and the companies are looking forward to the same exception. Still, crude oil imports from Iran are likely to fall a lot anyway. It is also predicted that the U.S. will limit imports by country in order to make its sanctions effective.