South Korea aims for full GCC FTA execution by year-end, refiners hopeful for cheaper sour crude

The South Korean government aims to wrap up legal and administrative procedures required to fully implement the free trade agreement with Gulf Cooperation Council members by September, a deal that could allow local refiners to procure Middle Eastern sour crude cheaper and improve their margins.

Minister for Trade Dukgeun Ahn and GCC Secretary General Jassim Mohammed Al-Budaiwi had signed a joint preliminary statement for the South Korea-GCC FTA in December 2023.

The government is now aiming to complete an economic impact evaluation, seek the National Assembly's ratification agreement and execute other necessary administrative procedures for the FTA's entry into force, public relations managers and officials at state-run Korea Trade Investment Promotion Agency and the Ministry of Trade, Industry and Energy told S&P Global Commodity Insights over Aug. 6-8.

"Although the agreement was signed last year [2023], the treaty still requires various procedures to be cleared ... the ultimate goal is to finalize all necessary domestic procedures by September and to proceed to the formal implementation of the FTA before the end of the year," a MOTIE official said.

Minister Ahn recently met Saudi Arabia's Minister of Commerce Majid bin Abdullah Al-Kassabi on July 30 in Seoul to discuss about the FTA's swift entry into force.

"To expedite the legal review process of both parties, we ask for [Saudi Arabia's] support as a member of the GCC," Ahn said at the July meeting.

Apart from South Korea's top crude supplier Saudi Arabia, the six GCC members include other major crude suppliers such as Kuwait, the UAE, Qatar and Oman, as well as Bahrain. Among major Middle East crude suppliers to South Korea, only Iraq is not a GCC member.

Sour crude trading edge

Traders, feedstock managers and oil product marketers at major South Korean refiners indicated the formal implementation of FTA with major Middle Eastern crude producers would provide them a significant edge in buying Persian Gulf sour crude cargoes at a lower cost.

South Korea currently levies a 3% tariff on imported crude oil, which is abolished or cut for volume from suppliers that have free trade agreements with the nation.

In the first half of 2024, South Korea imported 160.6 million barrels from Saudi Arabia and paid on average $86.66/b, Elsewhere, 39.1 million barrels came from Kuwait in the first six months at an average cost of $84.56/b and 74.7 million barrels were imported from the UAE over the same period at an average price of $86.46/b, latest data from state-run Korea National Oil Corp. showed.

KNOC's import cost data includes freight, insurance, tax and other administrative and port charges.

Platts, part of Commodity Insights, assessed Middle Eastern sour crude physical benchmark Cash Dubai at an average $83.26/b in H1.

"If the FTA with GCC nations can be fully implemented by end of the year, we could restructure and reconfigure our Persian Gulf sour crude procurement plans for 2025 in a positive manner ... every cent saved on taxes and tariffs would all contribute to healthier refining margins," said a feedstock and logistics manager at a major South Korean refiner.

The South Korea-US FTA, for example, allows cost cuts by up to $2/b for WTI Midland crude purchases, a trade source at a South Korean refiner's feedstock trading team in Singapore said.

South Korean refiners combined spent over $40 billion for feedstock crude purchases and procurement in H1, according to Korea Petroleum Association. FTAs with energy producing nations would be strategically essential for the world's fourth biggest crude importer, refinery sources based in Seoul and Ulsan said.

Most recently, South Korea separately signed a bilateral FTA with the UAE on May 29, removing the 3% tariff on various Abu Dhabi sour crude grades including Murban, Das Blend and Upper Zakum over the next 10 years.