US
faces sanctions dilemma in East
Asia By Yong Kwon
The
ongoing struggle between the United States and
Iran over Tehran's nuclear program continues to
affect countries in East Asia. Reinforced
sanctions from the US, initiated at the end of
June, threaten to punish countries that have
deviated from Washington's efforts to completely
isolate Tehran from the global oil market. This
constitutes a major problem for countries in
Northeast Asia that import significant portions of
their crude oil from Iran.
In particular,
both South Korea and Japan clearly recognize
Iranian oil as indispensable to their economies,
creating an awkward conflict of interests. Despite
their relationship and alignment with the United
States, Seoul and Tokyo have respectively taken
different steps to bypass the sanctions and
forestall punitive
chastisement from Washington. As noted in an
earlier article (see East
Asian energy dilemma over Iran, Asia Times
Online, January 24, 2012), the sanctions on Iran
not only force two of Washington's closest allies
to re-evaluate their relationship with the US, but
also weaken attempts to denuclearize Iran.
The Barack Obama administration appears
heavily invested in finishing what its predecessor
began, forcing Iran to surrender its nuclear
program by "going directly at their revenue". Even
before the enforcement of the most recent
sanctions, sources from Iran admitted that oil
exports had declined in the span of a year to
about 1.5 million barrels per day (bpd) from about
2.5 million. [1]
However, these harsh
losses were not enough for Tehran to concede,
which led Washington to assume that more sweeping
sanctions had to be enforced, especially ones
targeting the market for Iranian oil in East Asia.
East Asia had already begun to reduce
imports from Iran. In May alone, South Korea,
Japan, China and India had cut imports by 25%,
bringing imports down to 999,230 bpd compared with
1,338,193 bpd a year earlier. [2] Nonetheless,
Washington wanted more punitive economic measures
to be undertaken against Iran. By fostering enough
insecurity around Iranian exports, the US believes
it can achieve its goal of isolating Iran without
directly forcing states to participate in the
sanctions regime.
The South Korean case is
revealing. In June, on top of pressure from
Washington to import less oil from Iran, South
Korea reduced exports to Iran to avoid payment
defaults resulting from an overall deficit in the
Iranian export market. [3] Therefore, even if
South Korea were not participating in the
sanctions regime, a significant loss of faith in
Iran's ability to pay for imports would have
facilitated Washington's desired objective of
isolating Tehran from the international market.
Completely cutting off Iranian oil imports
in a short amount of time was out of the question
for both Japan and South Korea. Even with the
controversial decision to restart its own nuclear
power plants, Japan would not have been able to
rapidly substitute Iranian oil without major
financial loss.
Washington did temporarily
exempt both countries from joining the sanctions
based on their notable reductions in oil imports
since December 2011. While this waiver was
permitted, the European Union held steadfast to
its decision to block access to tanker insurance
starting in July. Without insurance for tankers
traversing the high seas, the delivery of crude
oil from Iran would have effectively come to a
halt. As a result, top Asian purchasers of Iranian
oil were forced to continue cutting imports
throughout June in preparation for the de facto
embargo.
Meanwhile, more desperate than
other nations to secure energy, the Japanese Diet
(parliament) passed a bill that allowed Tokyo
itself to insure oil tankers carrying crude oil
from Iran to Japan. At the same time, in reaction
to South Korea's decision to halt oil imports in
July, Tehran offered to deliver the crude oil in
its own tankers, which Seoul quickly accepted.
The US lobby group United Against Nuclear
Iran seems almost to have anticipated this when it
lobbied the South Korean ship classification
society to stop verifying safety and environmental
standards for Iran's shipping companies. [4]
Without verification from these maritime bodies,
ships from such companies would be prevented from
making calls at international ports, effectively
limiting the reach of the commercial fleet and its
cargo.
Officials in Seoul are eager to
find a way both to satisfy South Korea's domestic
needs and to secure the country's relationship
with the United States. On top of burgeoning
energy needs, around 2,900 South Korean companies
export to Iran, of which 90% are small or medium
enterprises. [5]
Conscious of the
contradictions in maintaining close commercial
ties with Iran while staying firmly positioned as
a robust ally of the US, South Korean official
statements attempt to ameliorate the situation by
suggesting that Washington does not actually want
to "drive Iran towards a cliff" and that Korea's
trade with Iran is at acceptable levels.
However, rhetoric from Washington is
predictably harsher. As far as the rest of the
world can see, US Secretary of State Clinton is
continuing to emphasize her intentions to
intensify the isolation and pressure if Iran does
not take concrete actions to dismantle its nuclear
program.
The timing of the sanctions makes
it even more difficult for East Asian economies.
At a time of slow economic growth and declining
exports, reduction of fuel imports or the increase
in the cost of importing energy places a heavier
burden on countries struggling to remain
competitive in the international market. This is
true elsewhere, but the consequences of the
ongoing Iran crisis to the economies of South
Korea and Japan are more pronounced because of
their relatively larger reliance on Iranian oil.
Replacing the oil supply is certainly
possible, as many Middle Eastern oil kingdoms have
stepped up to offer increased shipments to South
Korea and Japan; however, renegotiating and
streamlining new oil imports is both challenging
and time consuming, and invariably more expensive.
Furthermore, considering how the dispute
between Iran and the United States is
destabilizing the international oil market, the
sanctions come as an unwelcome obstacle to South
Korea and Japan's (and many others') drive towards
economic recovery and growth. At the same time,
Seoul and Tokyo's willingness to find ways to
continue purchasing oil and transacting goods with
Iran undermines Washington's sanctions-based
approach towards denuclearizing the Middle East
country.
To top it off, it is not clear
whether Iran would actually surrender its nuclear
program because it faces increasing economic
pressure. As the New York Times has noted, this
may be the most comprehensive economic sanctions
regime that the US initiated since imposing
sanctions on raw materials going to Imperial Japan
in the 1930s and '40s, which of course hastened
the start of the Pacific War.
More
prevalently, while the tensions are not
immediately obvious, South Korea and Japan's
forced self-harm to their own economic interests
may have deep consequences for the future of the
trans-Pacific relationship.
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