South Korean refiners to take extra caution in Persian Gulf crude logistics amid Seoul-Tehran spat

South Korean refiners would take extra caution to ensure safe voyage of their Middle Eastern sour crude oil shipments sailing through the Strait of Hormuz amid recent diplomatic spat between Seoul and Tehran, industry sources told S&P Global Commodity Insights Jan. 25.

South Korea’s shipping sector and refining industry are on their toes after the Korea Shipowners’ Association (KSA) issued a warning Jan. 18 to all vessels sailing in the Persian Gulf and the Strait of Hormuz to “remain vigilant,” as diplomatic tensions between Seoul and Tehran raises the risk of potential detainment of South Korean flagged and/or South Korea-bound vessels sailing near Iran, container shipping sources based in Busan and feedstock logistics management sources at two major South Korean refiners said.

South Korean President Yoon Suk Yeol made a rash remark describing Iran as the “archenemy” of the UAE during his visit to Abu Dhabi in the week of Jan. 15, sparking a wide array of diplomatic controversy, with Tehran demanding an explanation from Seoul, while many Iranian industry and business leaders started questioning whether Seoul’s policy toward Iran has changed.

Iranian Foreign Ministry spokesperson Nasser Kanaani stated that the ministry was “looking into and pursuing the meddling comments” by Yoon and awaiting an explanation from the Seoul foreign ministry.

South Korea relies heavily on Middle Eastern crude and President Yoon’s remark was “absolutely unnecessary,” as it could severely damage the diplomatic relationship between the two nations, while the shipping and refining companies fear a potential repeat of a tanker detainment incident that occurred in 2021, according to the refinery feedstock and logistics managers who declined to be identified due to the sensitive nature of domestic and international politics.

In January 2021, Iran detained a South Korean-flagged chemical tanker, the Hankuk Chemi, on the Strait of Hormuz, for allegedly polluting the environment.

South Korean government had indicated that the seizure may be linked to Iran’s disenchantment with Seoul. Iran’s assets worth $7 billion has been frozen in two South Korean banks for several years, due to Washington’s tightened sanctions against Tehran.

Most of South Korea’s spot and term crude oil purchased from major Middle Eastern suppliers including Saudi Arabia, UAE, Kuwait, and Iraq must pass through the Straits of Hormuz. Asia’s third biggest crude importer took around 1.9 million b/d of crude oil from Persian Gulf producers in 2022, up 10% from 1.72 million b/d imported from the region in 2021 and making up more than 63% of its total refinery feedstock intake last year, data from state-run Korea National Oil Corp. showed.
Iranian trade hopes

Although South Korean refiners have halted purchasing Iranian crude oil for several years due to the ongoing international sanctions on Tehran, the two nations have an extremely strong economic and cultural ties, refining industry sources and analysts said.

Prior to the sanctions on Tehran, South Korea used to be one of the world’s top three customers of Iranian crude oil and Asia’s biggest Iranian condensate, or ultra-light crude, importer.

In 2017, South Korea received 148 million barrels of crude and condensate from Iran, making the Persian Gulf producer its third biggest refinery feedstock supplier in the year, the KNOC data showed.

South Korean refiners and petrochemical companies indicated that they are hoping to see tensions between the US and Iran easing to the extent that Iranian oil and condensate imports could at least partially resume sometime this year.

Major South Korean refiners as well as petrochemical makers including Hanwha TotalEnergies were previously avid buyers of Iran’s South Pars condensate.

South Pars condensate’s competitive price tag could mean that petrochemical makers would obtain cheaper feedstock naphtha by cracking the condensate, while refiners could sharply improve their profit margins for producing and blending gasoline, industry sources in Seoul, Daesan and Ulsan said.

Before the sanctions, South Pars condensate had typically traded at a discount of at least $2/b to Qatar’s Deodorized Field Condensate, or DFC, in the market, according to trading sources based in Singapore farmilar with daily Asian condensate spot trades.

Platts, part of S&P Global, assessed the price spread between South Pars and DFC at an average of minus $3.74/b over 2018-2022.
Source: Platts