Iran sanctions could hit SMEs hard

Posted on : 2012-05-22 11:50 KST Modified on : 2012-05-22 11:50 KST
Import-export firms could have their hands tied by international sanctions on Tehran

By Lee Seung-jun and Kwon O-sung, staff reporters
An official at a mid-size metal exporting business is on pins and needles after news that Iranian crude oil imports could run into problems as early as the end of this month. Iran is one of the firm‘s main customers.
Under the current won-denominated transaction system, in which crude import payments to Iran are received in turn as export proceeds, there is a possibility the company won’t be able to get its money.
“We could see something like one million US dollars getting tied up,” the official explained.
“Unless some kind of steps are taken, we’ll have no choice but to cut our Iran exports,” the official added.
Around 20% of the company’s sales last year were exports to Iran, amounting to around 20 billion won (about US$17.2 billion).
The growing possibility of Iranian crude imports running into a wall by late May as a result of sanctions by the European Union is triggering concerns about rising oil prices and throwing a wrench into the operations of SMEs that depend on exports to the country. The South Korean government is currently negotiating with the EU, but the chance of compromise still appears up in the air.
A Ministry of Strategy and Finance Official said Monday that Seoul was making continued efforts, asking the EU to grant an exception on its decision to halt Iranian insurance and reinsurance until a final policy decision is made at a foreign ministers’ meeting scheduled for June 25.
As of July 1, the EU plans to stop providing insurance for transportation used to import Iranian crude oil. Without insurance, oil tankers will not been able to travel. Since crude transport takes over 40 days, this could mean a halt to imports from Iran as early as the end of this month.
Companies currently importing crude from Iran merely said they would take measures in line with the government’s decision and ensure minimal effects on supply. These included SK Innovation and Hyundai Oilbank, where 10% and 18% of the oil, respectively, comes from Iran.
According to a KOTRA report from February on export business support measures in the wake of the additional Iran sanctions, SMEs account for 98% of the country‘s companies doing business with Iran (2107 out of 2150), and 80% of all exports. Most of these businesses receive export payments out of crude import proceeds from South Korean refiners with accounts at the Iranian central bank.
“There could be problems for the businesses that use a won-denominated transaction system,” explained an official with the Korea Federation of Small and Medium Business.
The government is currently believed to be considering plans for distributing export proceeds beforehand to minimize the hit to SMEs.
 
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