SINGAPORE/SEOUL: South Korea’s Samsung Total Petrochemicals Co has revived a contract to buy Iranian oil after a year’s hiatus, as thin margins in plastics make the cheap fuel from Iran hard to resist, people familiar with the deal said yesterday.
Stringent US and European sanctions aimed at reducing Iran’s oil income and forcing Tehran to curb its nuclear programme have made shipping and paying for the oil hard, halving the Islamic Republic’s crude exports.
The deal is a rare example of a buyer returning to the market for Iranian oil despite the obstacles arising from sanctions and efforts by Western powers to stem the flow. After jarring interruptions in exports from Iran last year that included a halt in shipments to top consumers Japan and South Korea, importers have found ways to keep oil flowing without violating sanctions.
The allure of cheap oil and improved margins has made it worthwhile for the South Korean joint venture between two big international firms to find ways around difficulties. The deal may save Samsung Total as much as $6.7m in costs, according to Reuters calculations.
“The deal can be easily understood if you look at Samsung Total’s financial situation,” according to a government source in Seoul with direct knowledge of the matter. The company is a joint venture between South Korea’s Samsung Group and French energy giant Total.
Spokespeople at Total, Samsung Total and the Samsung Group declined to comment.
Asked during a news briefing in Paris if the deal broke international sanctions, French Foreign Ministry spokesman Philippe Lalliot said: “It is complex and we have to look at the legal side of it and see if it’s within the parameters of the sanctions. What I will say is we will respect to the letter the different sanctions trains, especially as it is France that pushed for them.”
The European Commission had no immediate comment on the matter. Samsung Total stopped importing oil from Iran last year as the US and European Union imposed sanctions to halt a nuclear programme the West suspects Iran may be using to develop arms. Tehran denies this. To comply with US sanctions, importing countries are required to reduce purchases of Iranian oil.
Co-owner Total also stopped buying Iranian oil for its refineries to comply with EU sanctions last year. Replacing the Iranian oil forced up Samsung Total’s input costs, contributing to a fall in operating profits, sources said. Those profits fell 90 percent in the second-quarter of 2012, according to the company’s regulatory filings. The company switched to more expensive Australian and Russian condensate last year, sources said.
Samsung Total had an annual contract to buy about 550,000 barrels a month of Kangan condensate until June last year, although it is unclear if it actually imported the full volume during the first half of 2012. The volume of the new contract is unclear. Other South Korean refiners will have to import less to make way for Samsung Total’s new contract if Seoul is to comply with US sanctions.
Reuters
