Iran sanctions pose economic risk to S.Korea

Posted on : 2010-08-07 12:48 KST Modified on : 2010-08-07 12:48 KST
Observers say the U.S. is collecting on diplomatic favors after providing diplomatic assistance to S.Korea
 
 Aug. 6.
Aug. 6.

 “At the moment, it is difficult to grasp what kind of effects the Iran sanctions issue will have”, a senior official at an economic government office said, in reference to South Korean economic issues. “It is important enough that it is keeping us awake at night.”

 The reason for this anxiety is that damages to South Korean companies as a result of the U.S.-led sanctions are already becoming a reality, and if South Korea makes its own “independent plan for sanctions,” as the U.S. is requesting, the aftereffects on the national economy could be considerable. After focusing solely on its alliance with the United States, the Lee Myung-bak administration now finds itself in a dilemma where it has to confront a major blow to the economy, which has been its primary emphasis.

 10 Percent of Crude Oil Imported: Interruption Would Be Fatal to the Economy

 The U.S. has no economic relations with Iran, but South Korea is a different story. It imports around 10 percent of its total crude oil and is the largest trading partner of the Middle East, with some $10 billion in trade per year. As South Korea does not produce a drop of oil by itself, it is obliged to consider what would happen if its relations deteriorate with Iran, which holds the world’s second largest crude oil and natural gas reserves.

 “If the situation worsens to the point where there is trouble importing Iranian crude oil, it will drive up oil prices not only in Korea but throughout the world,“ said Lee Dal-seok, head of the energy market research division at the Korea Energy Economics Institute. “It will also have a detrimental effect on the global economy, which is currently in a process of recovery.”

 The actual scale of exports to Iran is very slight, only 1 percent of total exports, but the fact that some 2,000 small and medium-sized enterprises (SMEs) are involved means an inevitable burden for the Lee administration, which has been placing so much emphasis on “working class-friendly policy” recently.

 In particular, exporting SMEs, unlike large corporations, are unlikely to survive two to three months if their transaction lines are cut off. In addition, there could be a continued increase in damages to areas that have had many orders from Iran, namely construction, industrial plants, and shipbuilding.

 The administration is working to create a channel for settling transactions with Iran, already blocked off due to U.S. sanctions, but it is not easy.

 “From what I have heard, the government is looking for a third way,” said a financial institution official. “We are also waiting, but it does not look good, given the objective of the U.S. sanctions and the practical conditions.”

 There is also concern about how Iran will respond if South Korea makes its own sanctions plan. After Japan announced follow-up measures based on United Nations sanctions, Iran reportedly made remarks of a “retaliatory” character. A senior government official did not conceal perplexity, saying, “If we do something strong, Iran will not just sit there and take it, and if we do something weak the U.S. will object.”

 Excessive Dependence on U.S. Narrowing Range of Movement

 Other nations, including Japan, are likewise discomfited by the Iran sanctions issue. However, foreign affairs experts contend that the scope of South Korea’s movement has been relatively more limited thanks to the Lee administration’s “U.S.-focused diplomacy” since it took office. Another factor weakening its position has been the considerable diplomatic assistance it has received from the Barack Obama administration in the U.S. while bidding to host large-scale summit diplomacy events and responding to the Cheonan’s sinking.

 Regarding the powerful pressure the U.S. has applied on Seoul on the Iran sanctions issue, a former senior official said, “The U.S. has finally started sending invoices. It is now going to make countless demands in the future that the Lee Myung-bak administration will find it difficult to deal with.”

 Many observers see demands for renegotiation of the South Korea-U.S. free trade agreement (KORUS FTA), an area where the U.S. is already openly applying pressure, as another one of these “invoices.”

 In a recently published piece, Song Min-soon, a Democratic Party lawmaker and former Foreign Minister and national security adviser for the Roh Moo-hyun administration, wrote, “National security is like oxygen, and the economy like blood. A lack of oxygen to the Korean Peninsula restricts opportunities for prosperity.”

 Analysts say this could be interpreted to mean that the enemy to the “business-friendly diplomacy” emphasized by the Lee administration is none other that its own hardline policy on North Korea and emphasis on the South Korea-U.S. alliance, which have weakened the country’s diplomatic position in Northeast Asia.

 Please direct questions or comments to [englishhani@hani.co.kr]

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