South Korea’s third largest refiner signed a rare 20-year deal to buy oil from Saudi Arabia as Asia’s crude consumers come under U.S. pressure to reduce imports from sanctions-hit Iran.
S-Oil, 35 percent owned by Saudi Aramco, said on Thursday the contract with its biggest shareholder was the first long-term commitment of its kind by the world’s top crude exporter, which has promised to make up for any shortfall in global oil supplies.
Securing oil supplies is a priority for South Korea, Asia’s fourth largest economy and the world’s fifth largest oil importer. Korea, a close U.S. ally, buys 10 percent of its crude needs from Iran and President Lee Myung-bak is touring Gulf oil producers this week to seek alternative sources.
“The crude supply contract from the world’s largest oil producing country, at a time of serious volatility in the market due to the embargo against Iranian crude and (Iranian) threats to block the Straits of Hormuz, will ensure stability in the company’s refinery operations,” S-Oil said in a statement.
The company said the contract was “highly unusual” in a market where one-year supply deals are the norm.
S-Oil is South Korea’s third-largest refiner with a 669,000 barrels per day (bpd) capacity and Saudi Aramco supplies almost all the crude it processes into fuels.
Unlike rivals SK Energy and Hyundai Oilbank, it does not buy any oil from Iran. The two refiners struck annual deals to buy a total of 200,000 bpd of Iranian crude this year, up from around 190,000 bpd in 2011.
Asian nations import half of Iran’s 2.6 million bpd exports.
Seoul has yet to publicly commit to cutting Iranian oil imports at the behest of Washington, which is its main security guarantor and which, along with the European Union, imposed a raft of financial sanctions against Iran aimed at halting its nuclear program.
Tehran says the program is aimed at making power, not weapons. Many Western nations doubt Iran's claims.
Some $5 billion in payments for Iranian crude oil imports is sitting in escrow accounts in South Korea as it cannot be sent to Iran due to U.S. sanctions.
Saudi Arabia supplied over 30 percent of South Korea’s imports of 2.54 million barrels per day (bpd) of crude oil last year.
($1 = 1115.7750 Korean won)