Relief required for small and medium firms
Economic ripples are expected to be felt keenly as Iran threatened to halt all imports from South Korea in protest against Seoul's decision to ban Iranian oil under sanctions imposed by the European Union.
Iranian Ambassador to Seoul Ahmad Masumifar said in an interview with Yonhap News Agency Wednesday that his country ''may decide to fully stop importing Korean goods'' if Seoul slaps the import ban on Iranian oil.
The warning comes as South Korea will be forced to halt oil imports from Iran due to the EU's ban on insurance of oil tankers transporting Iranian oil from July 1 as part of sanctions on Iran after it has resisted international pressure to give up its nuclear development program.
Earlier, we urged the government to make an all-out effort to tackle the anticipated fallout from the suspension of Iran oil imports but little has been done so far. It may be belated but the government should do what it can to minimize the impact.
It's a comfort to hear that there would be little problem in securing crude thanks to efforts to date to diversify oil import sources. It's also fortunate that crude prices remain stable in the aftermath of the eurozone debt crisis.
Most worrisome are small- and medium-sized companies that would take a direct hit. According to the Ministry of Knowledge Economy, about 2,900 Korean companies engage in trade with Iran and 2,700 of them are SMEs. They usually receive payments for merchandise exports from the money Tehran earns from selling oil to Korean refiners under a unique settlement system. Now the money barely amounts to 1.8 trillion won and SMES can't get paid if oil imports from Iran are halted. Korea's shipments to Iran amounted to $6 billion last year.
The situation becomes all the more serious should the Iranian envoy's threat translate into action. The government says it will help SMES diversify to export to other countries but it won't be easy to look for new markets in such a short span of time. Instead, they urge the government to expand soft loans.
Fundamentally, the government will have to consider continuing oil imports, following in the footsteps of Japan that passed a bill last week offering $7.6 billion in state guarantees for oil shipments from Iran to cover the insurance to be withdrawn by European insurers. This means that the government will offer payment guarantees that could reach as much as $7 billion to transport the oil.
This measure, however, could force the government to run a high risk in the event of a naval disaster and can be controversial because of the need to get approval at the National Assembly and possible privileges.
The biggest question is that it's hard to foresee when the latest Iran crisis can be resolved. It is for this reason that the government should brace for the worst-case scenario on the assumption that the situation will be prolonged.