South Korea became the first major Asian consumer of Iranian crude to announce a halt to imports after the government said they would be suspended from July 1 due to a European Union ban on insuring tankers carrying Iranian oil.

The insurance ban makes it almost impossible to ship Iranian oil as most insurance is undertaken by EU-based companies and the move comes as part of a series of measures designed to put pressure on Iran to halt what the United States and others say is a nuclear weapons program.

South Korea depends on the United States for security, but it has no natural resources and has been scrambling for alternative crude supplies to replace those from a country that supplied 9.4 percent of its needs in 2011.

The world’s fourth largest buyer of Iranian crude said it has no plan to provide state guarantee like Japan to continue its imports. Another two major Asian buyers, China and India, will allow Iran to deliver the crude from July.

“South Korea’s imports of Iranian oil will be suspended, as the EU will suspend crude imports from Iran and also halt its insurance and reinsurance cover on the crude imports from July 1,” a joint statement from the economy, finance and foreign affairs ministries said.

“The government will continue to make efforts to minimize impacts on domestic industry and the economy including oil supply, and exports to Iran, although the imports of Iranian oil are suspended,” the statement said.

The official confirmation follows a Reuters story on May 21 that had cited sources as saying South Korea would become the first of Iran’s major Asian customers to halt oil purchases.

EU governments on Monday approved an embargo on Iranian oil to start on July 1 and warned Iran that more pressure could be put in place if it continued to defy international demands for limits on its nuclear program.

Around 90 percent of the world’s tanker fleet is covered by Western-based protection and indemnity (P&I) clubs, which insure against personal injury and environmental clean-up claims.

Japan will provide sovereign guarantees for Iranian shipments, China has asked Iran to deliver the crude while India has said it would allow state refiners to import Iranian oil, with Tehran arranging shipping and insurance, from July 1.

MOST IRANIAN OIL REPLACED

South Korea’s economy ministry said it had already secured most of its replacement oil.

“Most of the Iranian oil has already been replaced by Iraq, Kuwait, Qatar and the United Arab Emirates, and also imports from the spot markets, although still some is left to be covered,” Moon Jaedo, deputy minister for international affairs at the economy ministry, told a briefing.

Moon said that South Korea had not planned to use state guarantees for Iranian shipments, as Japan had done.

South Korea’s imports of Iranian crude oil fell nearly 40 percent in May from a year earlier, according to official data, reflecting Seoul’s efforts to reduce purchases in return for a waiver from U.S. sanctions that could have hit its companies.

South Korea imported 29.22 million barrels from Iran during the first five months of the year, or about 192,000 barrels per day, down almost 16 percent from a year ago, data from the state-run Korea National Oil Corp showed on Monday.

The United States earlier this month extended exemptions from its sanctions on Iran’s oil trade to seven more countries including South Korea.

Of South Korea’s four refiners, only SK Energy and Hyundai Oilbank import Iranian crude. Sources said both refiners will stop importing from Iran when the EU insurance embargo takes effect from July 1.

It was not immediately clear what the two refiners will do with their existing contract to buy 200,000 bpd of Iranian oil in 2012.

The United States and the European Union accuse Iran of trying to build nuclear weapons. Tehran says the program is strictly for civilian purposes.

South Korea has also imposed curbs on exports of goods to Iran to reduce the risks of payment defaults.

Korean exporters usually receive payments via won-denominated deposits of the Iranian central bank that are generated by Iran’s oil sales here.

(Editing by David Chance and Ed Davies)
By Meeyoung Cho
Source: Reuters