As the United States decided to lift export sanctions on Iranian crude oil and petroleum products, the petrochemical industry has started running the numbers. The four refiners are expressing expectations but also signaling that it is hard to welcome the move without reservations.
Iranian crude is cheaper than other Middle Eastern crude, so cost savings can be expected. However, even if the United States lifts sanctions on Iranian oil, the possibility of a "secondary boycott" remains open, under which corporations and banks in third countries that conduct a transaction with a sanctioned country are sanctioned across the board, making it hard to readily move to bring in Iranian crude. Also, after U.S. sanctions, operations at some oil wells in Iran were halted, so crude supply may not be as smooth as before.
According to major foreign media including The Wall Street Journal (WSJ) on the 18th, with the United States and Iran agreeing to a truce, the United States is set to allow Iran to sell oil. WSJ said, "The waiver clause on oil sales sanctions takes effect immediately upon signing the memorandum of understanding for the truce in writing," adding, "Essential services needed to carry out crude sales, such as banking, transport, and insurance, are also exempted from sanctions."
Initially, the two countries were scheduled to meet in person in Switzerland on the 19th (local time) to sign the MOU in writing. But the U.S. online outlet Axios reported that on the 17th local time, U.S. President Donald Trump signed the MOU related to the truce agreement with Iran remotely, putting the agreement into effect. If that report is correct, sanctions on Iranian crude and petroleum products have been lifted, and imports are possible.
The last time the four refiners—SK Energy, HD Hyundai Oilbank, S-Oil, and GS Caltex—imported Iranian crude was 2019. They halted imports starting in 2020. That was due to the first Trump administration scrapping the Iran nuclear deal concluded under the Obama administration and implementing a secondary boycott sanctioning third-country corporations and financial firms that purchase Iranian crude or conduct a transaction with the Central Bank of Iran.
Since then, Iran has sold most of its crude to China at discounted prices using the so-called "shadow fleet." The shadow fleet refers to vessels that evade international sanctions by hiding ship positions and ownership and secretly carry resources such as crude oil or natural gas. Based on this, China is presumed to have secured price competitiveness in petrochemical products.
If Iranian crude is imported, domestic refiners and chemical companies can also boost price competitiveness. That is because Iranian crude is cheaper than other Middle Eastern crude. The average unit price of Iranian crude imported from 2015 to 2019 was $52.14 per barrel, cheaper than Iraq ($53.56), as well as Kuwait ($55.82), Qatar ($57.77), the United Arab Emirates ($58.32), and Saudi Arabia ($57.42).
From 2010 to 2019, Korea imported a total of 704,361,000 barrels of Iranian crude, accounting for 7.04% of total imports. By year, Iranian crude imported in 2017 made up 13.22% of the total, and 10.38% in 2016, surpassing 10%.
A source in the refining industry said, "Iranian crude is heavy oil that domestic refiners mainly process, and we already have experience importing and refining it, and it is on the cheaper side among Middle Eastern crude," adding, "The lifting of sanctions on Iranian crude is a boon."
However, there is also an outlook that it will be difficult to import Iranian crude right away. First, it could be sanctioned by the European Union (EU). The EU has not yet decided its position on Iran. If the EU maintains the secondary boycott, it will be hard to export petroleum products or petrochemical products to the EU that are produced using Iranian crude as feedstock.
Crude supply may also be less than smooth due to internal conditions in Iran. The New York Times (NYT) said, "Despite the financial freedom Iran will gain, the country's energy industry faces numerous obstacles, including rebuilding war-damaged infrastructure," adding, "Oil wells that were shut down due to the U.S. blockade on Iran's exports may be difficult to restart."