South Korean refiners see slim chance of Iranian crude trade resumption under Trump

South Korean refiners and petrochemical producers have nearly ruled out the resumption of Iranian crude trade this year, though industry participants believe that Seoul's new leadership after the June election could enhance overall flexibility in feedstock procurement activities.

South Korea's refinery crude distillation unit and condensate splitter configurations have completely shifted away from Iranian crude grades this year, as the prospects for sanctions on Iran being lifted have further diminished, according to feedstock and operations managers at major South Korean refiners and petrochemical companies, including Hanwha Total.

Historically, South Korea ranked among Asia's top three buyers of Iranian crude and was the largest customer of Iranian South Pars condensate before international sanctions were imposed on Tehran.

The appointment of reformist politician Masoud Pezeshkian as Iran's president in July 2024 briefly raised hopes for a normalization of oil trade flows from Iran, with expectations that Tehran might push for a broader thaw in its relations with the West by reviving the nuclear deal and easing sanctions.

However, refinery sources and industry participants said the likelihood of Iranian oil trade resuming this year is virtually zero, particularly given the Trump administration's significantly tougher stance on Tehran.

On April 16, the US Department of the Treasury sanctioned Shandong Shengxing Chemical in Shandong Province for acquiring over $1 billion worth of Iranian crude. More recently, the US imposed sanctions on two Iranian businessmen and their corporate network for shipping millions of dollars' worth of Iranian LPG and crude oil to foreign markets.

Until the fourth quarter of 2024, CDU and splitter configurations, along with the overall feedstock processing system, were somewhat maintained to accommodate South Pars condensate, in anticipation of any unexpected geopolitical changes that could lead to an easing of sanctions on Iranian oil exports.

However, the system is now nearly 100% adapted to process Qatari and other regional ultra-light crudes, according to a feedstock and inventory manager at a major refining and petrochemical company, who requested anonymity due to the sensitive nature of Iranian oil trades and the specific refinery's crude slate.

In 2017, South Korean refiners, including SK Innovation, Hyundai Oilbank and Hanwha Total, collectively purchased 148 million barrels of crude oil and condensate from Iran, according to data from state-run Korea National Oil Corp.

"It is a real shame that the highly economical Iranian South Pars condensate has not been available for nearly a decade. We held onto some hopes for a possible easing of Iranian oil sanctions until last year, but we now see those chances slipping further away," said a feedstock manager at another major South Korean refiner based in Ulsan.

Platts, part of S&P Global Commodity Insights, assessed Iran's South Pars condensate at an average discount of $5.06/b to Qatar's Deodorized Field Condensate so far in April, with the spread averaging minus $5.13/b in the first quarter.

New diplomatic strategy

As the presidential election on June 3 approaches -- following the South Korean Constitutional Court's unanimous decision in April to accept the impeachment request against former President Yoon Suk-yeol -- the refining industry widely anticipates that the country's diplomatic strategy will shift toward greater flexibility in international trade if Liberal Democratic Party candidate Lee Jae-myung assumes office.

While the Yoon administration's diplomatic policy closely aligned with Washington's directives, Lee's leadership may seek to negotiate exclusive trade arrangements and economic deals, according to refinery feedstock and oil product marketing managers, as well as political analysts based in Seoul.

In a recent media poll conducted over April 16-18, Lee Jae-myung secured a commanding lead with 50.2% support. In comparison, People Power Party candidate Kim Moon-soo garnered 12.2%, followed by Han Dong-hoon with 8.5% and Hong Joon-pyo with 7.5%.

Leading presidential candidate Lee recently criticized the previous Yoon administration's ideologically biased diplomacy, saying that it has significantly undermined South Korea's economic interests. He emphasized that the primary principle of diplomacy should be national interest, regardless of the pursuits of other superpowers.

"We need to pursue flexible and pragmatic diplomacy centered on national interests, rather than biased diplomacy. For this, we must respond firmly to the unreasonable demands of major powers that infringe on our companies' freedoms," Lee said.