The European Union’s imposition of tough sanctions against Iran starting from July 1 is really pushing Korea into a corner. One of the core elements of Brussels’ sanctions is to prohibit insurance companies in the EU from providing coverage for foreign tankers transporting oil shipments from Iran. As Korean tankers are insured or re-insured by big name insurance companies in Europe, this sanction is virtually halting Korea’s oil importation from Iran. No insurance simply means no seafaring. 

In 2011 Iran was Korea’s sixth-largest oil supplier accounting for 9.4 percent of total petroleum imports. An abrupt suspension of oil imports from one of the major suppliers is adding up another woe to the country’s general economic performance.

Even before the EU’s sanction, Seoul has already been tightening its energy belt, fearing an energy shortage this summer, by forcing to dial up the thermostats of downtown coffee shops and spreading a “cool casual” dress code. And the recent development may require punching another hole in the belt. What’s more, no oil imports from Iran also means no Korean exports to the country since both in-bound and out-bound bilateral transactions are presently cleared through the Iranian Central Bank accounts opened in Korean banks.

It was just a few weeks ago that Seoul breathed a sigh of relief when the United States decided to exempt Korea from the application of its new Iran sanction statute for the next six months, on the condition that Seoul would significantly reduce the oil imports from Iran. Seoul’s effort to secure a similar waiver from the EU was to no avail.

Interestingly, Iran is now offering a new type of service to countries like Korea. Iran is floating the idea that it can use its own tankers to deliver the crude oil to the importing states. This can be seen as an international version akin to a home-delivery service for people whose cars are grounded because their insurance policies were cancelled.

Whether this scheme will work is uncertain yet, because the home-delivery service still carries the issues of who pays for the insurance and what kind of an insurance package is purchased. This is the most recent attempt by some countries to find a “magic formula” to pursue two rabbits at the same time: joining the U.N.-imposed sanction against Iran, while also minimizing a negative impact on their economy. Achieving the goal does defy an easy solution.

The U.N. Security Council sanction is legitimate in all respects under the circumstances, and individual countries’ authority to enforce its own sanction measures within the framework of the U.N. resolution seems also unquestionable. In the meantime, the government’s relentless efforts to get waivers from Washington and Brussels over the past several months have exposed how vulnerable Korea is in the overall chain of international transactions. Korea manufactures goods and exports them.

That is entirely within its control. But key elements to bring the goods into the stream of international commerce are within the jurisdiction of other countries. International banking and financing, and maritime insurance are two examples of such key elements. The former was the reason for Korea’s effort to get a waiver from Washington, whereas the latter explains the recent fire drill concerning the EU sanction. Both countries control the critical check points of the long road of international trade. If any checkpoint is closed or tightened, the effect would be more immediately felt by countries like Korea with a lot of traffic volume and no other alternative routes in sight. So, a similar situation could easily happen in the context of transactions of other ordinary goods as well.

Some countries’ decision to introduce their own maritime insurance programs to cover their oil shipments from Iran in the face of the EU sanction is the recognition of this reality. This also suggests that a network of Plan B options be reviewed and prepared by Korea well in advance for future contingents.

Exploring creative ways to get around other countries’ sanctions is one thing. But a more difficult problem is how to deal with the cold stares from these countries watching an array of circumventive maneuvering, countries that exert significant influence at every corner of international transaction. Finding a balance between preserving commercial interest and falling in line will continue to be a daunting task.

By Lee Jae-min

Lee Jae-min is a professor of law at the School of Law, Hanyang University, in Seoul. Formerly he practiced law as an associate attorney with Willkie Farr & Gallagher LLP. ― Ed.