Could Korea get caught in the crossfire of new US sanctions targeting Iran?

On Monday, the United States announced its "Operation Economic Outcast" against Iran, aiming to cripple the country's economy by sanctioning nations that trade with Iran. This new strategy involves imposing secondary sanctions on countries and entities dealing with Iran in five sectors: digital assets, technology, gold, aviation, and shipping.

South Korean authorities are closely monitoring the potential impact of these new sanctions, with foreign ministry spokesperson Park Doo-soon confirming that Seoul will examine the consequences for South Korean businesses and financial institutions.

Before the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) with Iran in 2018, South Korea had been a major importer of Iranian crude oil, with trade reaching a peak of US$17.4 billion in 2011. However, after the withdrawal, South Korea ended an exemption for Iranian oil imports, significantly reducing trade to around US$150 million. Most South Korean companies have since exited Iran, and financial institutions have ceased all dealings with the country.

While South Korea is not expected to face significant direct repercussions from the sanctions, analysts are concerned about potential knock-on effects. Some predict that the US' pressure on Iran could escalate, prompting additional economic sanctions that may strain South Korea's relationships with key trading partners like China, Russia, Turkey, and India.

China, in particular, serves as a crucial economic lifeline for Iran, accounting for 90% of Iranian crude oil imports and supporting these transactions with financial institutions. If the US targets Chinese companies with secondary sanctions, it could spark a global economic backlash, especially if China retaliates.

Despite these concerns, South Korea's economy may ultimately depend on China's response to the sanctions. If China remains unaffected, the impact on Iran could be relatively limited. However, if the US targets Chinese companies, it could trigger a broader international economic crisis. The US administration is hoping to secure a deal with Chinese President Xi Jinping at an upcoming summit in September, but the outcome remains uncertain.