Why South Korea and Other Economic Powers Begged Washington for Sanction Waivers to Buy Iranian Oil?
Before I delve into the heart of the matter, it is imperative to once again invoke the JCPOA (Joint Comprehensive Plan of Action) better known as the Iranian nuclear deal that was signed in July of 2015 by P5+1 (US, UK, France, Russia, China + Germany) which is now P4+1 since President Trump’s illegal and unilateral reneging of this multilateral contract.
To add more insult to the injury, President Trump [and in fact the entire anti-Iran faction in Washington lobbied by Saudi Arabia and Israel] has been demanding countries to violate international law and threatening countries with sanctions if they actually observe the law. This is perhaps unprecedented even by Washington’s own grotesque bullying, harassment, and lying standard which is now at its climax with an inexperienced malignant narcissist occupying the White House.
President Trump who has time-after-time proven to be a wholly-owned subsidiary of a certain regime in the Eastern Mediterranean Sea is forcing otherwise sovereign nations to act in a lawless and illegal manner, both in the letter as well as the spirit of the law, in this case the JCPOA.
To me and in fact the overall international community, it is outrageous that a powerful country like South Korea, the world’s 11th largest economy, had to ask and in fact beg for a waiver to conduct business with the world’s 4th largest oil and natural gas producer, Iran. This of course is behind us for now. But symbolically, it has left yet another blemish on multilateralism by setting further corrosive precedent.
Naturally, we are not naïve experts and we are not trying to oversimplify the ever complicated geopolitical and geo-economic world order and the way economic and military alliances work. But the spirit of the neo-liberal economic order was fundamentally designed and intended to avoid such unilateral bullying and economic and political mafia diplomacy, a noticeable forte of President Trump, and instead create a somewhat functioning international community of nations. Of course, this is far from reality where only 10 to 20 powerful nations get to dictate and bully others in a social Darwinistic and law of the jungle manner. This does NOT constitute a true “international community”. Far from it, it is a farce!
Back to South Korea, during the past 50 years, the latter has demonstrated an incredible economic growth and global integration to become a high-tech industrialized economy. Its GDP currently stands at $2.02 trillion! The fact that South Korea was forced to ask for a “maximum flexibility US waiver” demonstrated how much South Korea’s economy would have been harmed as a result of President Trump’s new wave of sanctions against Iran which went into effect on November 4th, literally two days before our midterm elections here in the US where the Democrats took the majority in the House, but remain the minority party in the Senate, demonstrating deep unprecedented division perhaps not seen since our Civil War (1861-1865). The country is more divided than ever and we are at a standstill where nothing gets done.
But I digress. South Korea is one of Asia’s biggest customers of the Iranian oil. As a mater of fact, according to the US Energy Information Administration better knows as EIA, after China, India, Japan, and Italy, South Korea is the 5th biggest importer of the Iranian oil. It gets 7.5 percent of its oil imports from Iran.
Other than the social, political, and economic animosity and deep hostility that has existed between US and Iran during the past 40 years, we are also looking at a supply provision economic rivalry between these two countries. For example, US is now entering the market to sell oil to China after a 42 years absentia. Again, according to US Energy Information Administration’s latest figures, China obtains 10% of its oil imports from Iran. This is a sizeable figure that US may want to take away under the pretext of Iran nuclear deal.
On the other hand, South Korea’s imports of US crude oil hit an all-time high in September and October of this year as the world’s 5th largest oil importer [South Korea] got dangerously close to cutting off Iranian oil imports due to intense pressures from Washington. Of course, as it turned out, Washington granted eight crucial sanction waivers not just to South Korea but also Japan, India, China (still under discussion), Taiwan, and Turkey, among others. The US crude oil loadings en route to South Korea hit a record high of 6 million barrels in the months of September and October according to Reuters’ sources and Thomson Reuters Eikon trade flow data.
Here are the two key reasons:
1) The overall US sanctions on Iran, and
2) The cheaper US oil compared to Middle-Eastern grades
Had the US not granted the maximum flexibility waiver to South Korea, there would have been a relatively significant damage to South Korean companies. Like so many times in the past, President Trump’s bullying threats to “bring Iran’s oil exports down to zero” was yet another cheap bluff. Besides, the Chinese would have never allowed that and in spite of the current trade war between US and China, the Chinese will exercise their maximum economic leverage over the US. And that will be when things start getting rather hairy. When that time arrives, it is my expert academic opinion that Iran may become an unintended beneficiary of the US-China trade wars if China reduces its oil imports from the US. However, that is a hypothetical and a conjecture, but nevertheless one of potentiality. Washington of course is quite aware of this scenario.
Other than the close call that South Korea would have been forced to cut its oil imports from Iran due to pressure from Washington, South Korea’s powerful Hyundai Corporation did announce to halt a $521 million deal with Iran to build a petrochemical complex in Iran. Furthermore, in June of this year, another South Korean giant, Daelim Corporation, also cancelled a $2 billion contract to renovate and expand a refinery in the Iranian city of Isfahan, Iran’s 3rd largest city after Tehran and Mashhad.
At any rate, even despite the sanction waivers, other top Iranian oil customers such as China, India, and Turkey have pledged to continue oil imports from Iran even at the face of shrinking supplies. If President Trump’s ill-considered bluff actually became a reality [which it did not], a sharp oil price hike would have seriously affected the global economy, relatively speaking. But I never thought that would have been the case. At the end, all of President Trump’s threats and bluffs will prove to be hollow. After all, rising energy costs caused by high oil prices would mean cutting Iranian imports would be impossible!
My extended live interview aired on Russia’s Radio Sputnik on October 31st (https://youtu.be/ndk7pURbbOs) in which I forecasted that Iran sanction waivers to South Korea and others would be possible was accurate and came to pass. This trend will continue. In an act to defy Washington, China has actually raised its oil imports from Iran to a record 800,000 barrels per day and promising to buy even more!
Let me also add that high level Iranian officials have in fact stated on record that they have very detailed contingency plans in place in order to limit any fallout from US sanctions. And contrary to all the saber rattling, Iran will never close the Straight of Hormuz where approximately 20 percent of the world’s oil exports pass through, 85 percent of which goes straight to East Asia. If that were to be the case, Iran’s ally China would have been the biggest loser by such move by far. So such scenario would be the equivalent to Iran shooting itself in the foot. It’s never going to happen. For its full blast economic growth to continue and for China to fully exploit the current globalization model to its benefit, China has a very strong long term national interest in the politico-economic stability of the world, especially throughout the Middle East which is contrary to Washington’s behavior in destabilizing the region ever since 2003 and then again in 2011.
Also, the Iranians have admitted that their oil exports might decrease by a few thousand barrels per day as a result of President Trump’s overall sanctions. But their exports will not fall by one million barrels per day. That is their red line and they have explicitly stated it.
Ultimately, China, South Korea, and Japan need to construct their own equivalent version of trade protection with Iran similar to how the European Union, for example, is trying to protect the Iranian oil revenues and shield Iranian companies from Washington’s draconian sanctions by creating this proposed SPV (Special Purpose Vehicle) which would be a new payment channel to facilitate business with Iran in order to circumvent President Trump’s sanctions. However, if the Iranians can’t assure political stability, trade, investment, and production, they will not be able to defend the viability of their currency which has lost two thirds of its value during the past several months.