04.05.2021 Author: Konstantin Asmolov

Continuing the Story of the Hijacked Tanker and Frozen Funds

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In early 2021, we wrote about the Iranian seizure of a South Korean tanker and how this precedent actually demonstrates a number of unresolved problems, most notably the problem of Iranian assets in South Korean banks intended to pay for Iranian crude oil imports and frozen because of US sanctions.

Recall:  Iran has repeatedly urged Seoul to address the $7 billion frozen in two South Korean banks as part of US sanctions after the Donald Trump administration pulled out of the landmark nuclear deal with Iran in 2018 and tightened sanctions against the Islamic Republic. On January 4, 2021, the Iranian Islamic Revolutionary Guard Corps seized the South Korean-flagged tanker MT Hankuk Chemi under the pretext of environmental pollution.

On January 10, 2021, a government delegation led by First Deputy Foreign Minister Choi Jong-gon arrived in Tehran. However, the parties were unable to reach any agreements. In fact, Choi called for the release of the tanker and demanded evidence of oil pollution in the waters of the Persian Gulf, which formally caused the tanker to be seized. In response, his interlocutor Abbas Araghchi said that the tanker was in the hands of an Iranian court, and that the development of bilateral relations can make sense only when the issue of frozen funds is resolved.

Araghchi openly stated that “the freezing of Iran’s foreign currency resources in Korea is more due to a lack of political will on the part of the Korean government than to US sanctions,” and called on Choi to work out a mechanism to resolve the issue. However, the Iranian side noted that the crew members were safe and in good shape.

Choi’s talks with Iran’s Central Bank Governor Abdel Nasser Hemmati and Foreign Minister Javad Zarif also proved fruitless. The minister reiterated the thesis that the executive branch does not interfere in matters that fall within the jurisdiction of the judiciary; and the bank recalled that the South Korean government had promised to resolve the issue a year and a half ago, but had done nothing.

Kamal Kharrazi, head of Iran’s Strategic Council on Foreign Relations, was even more blunt: “The two countries had good relations, but now, unfortunately, because the Korean government yielded to US pressure, Iranian assets worth $7 billion have been frozen in Korean banks, and it cannot even withdraw money to buy medicine“.

On January 12, during a briefing, Saeed Khatibzadeh of the Iranian Foreign Ministry expressed dissatisfaction with the measures taken by the ROK to solve the problem: the solution is delayed and Tehran is not satisfied. The Iranian side has indicated its position that the problem of frozen funds should be solved first, and the issue of the arrested tanker will be resolved in accordance with legal procedures.

As a result of Choi’s visit, the parties agreed on nothing but further negotiations, and Choi went to Qatar, where he appealed for assistance in freeing the South Korean tanker and its crew.

In mid-January it emerged that in order to “create a positive mood before negotiations with Iran,” South Korea withdrew its anti-piracy naval unit Cheonghae from the Strait of Hormuz. Iranian Ambassador Saeed Badamchi Shabestari allegedly once expressed displeasure to Seoul over the presence of South Korean troops in the Straits because they were actually part of an international contingent assembled by the United States to contain Iran, even though formally the unit is meant to fight regional piracy. It is a typical trick of South Korean foreign policy when US orders are de facto carried out, but de jure these actions are anything but the direct order. However, the Foreign Ministry of the ROK refused to confirm this movement of troops.

At the same time, there was a rumor that the Iranian party offered to use part of the frozen funds to pay off its outstanding UN membership dues. Although the amount is only $16,200,000, experts decided that the only the first step would be particularly difficult, and on January 19, the head of the Central Bank of Iran, in an interview with Bloomberg agency again noted that this is not the first time the authorities of the Republic of Korea promise to do everything possible, but in fact they continue to follow the US policy and rules.

The Korean party, on the other hand, has made certain hints that a change of power in the US could unblock the problem.

On January 21, Hemmati reported that some of the funds belonging to Iran, which are in foreign banks, have been unfrozen and are being used by the government.

On February 2, 2021, Iran agreed to release the entire crew of the hijacked tanker except for the captain. Seoul welcomed this decision, and “the parties agreed to continue mutual communication”. By this time everyone finally remembered that at the time of the seizure the ship was carrying not petroleum products, but ethyl alcohol, so it is unclear how the fact of pollution that became the reason for the arrest of the ship occurred at that time.

The next day, the ROK media reported that South Korea was finalizing negotiations with the US to use some of the frozen money to pay Iran’s outstanding US dues. Otherwise, South Korean experts believed that the decision was still related to the change of power in the US, because, first, Biden was going to deal with the restoration of alliances in general, and second, the Iranian issue, according to Southerners, will be solved differently than under Trump. Iran has been called upon to return to the Joint Comprehensive Plan of Action in order to restore the 2015 nuclear agreement.

In addition, it was reported that South Korea increased the export of medicine to Iran for two months, which also contributed to the release of detainees.

On February 11, the first Korean sailor returned home, but some of the crew remained on the ship to provide management.

On February 23, in a statement issued by South Korean Foreign Ministry in response to the Iranian Foreign Ministry’s statement on reaching an agreement with the South, it was stated that Iranian assets could be unblocked after consultations with the United States. According to a report posted on the Iranian government’s website, the agreement was reached during the February 22 meeting between Hemmati, Governor of the Central Bank of Iran, and Yoo Jong-hyun, the ROK ambassador to Iran. The parties agreed on directions for the transfer of money, and the Central Bank of Iran has informed Seoul of the amount it wants to receive.  Then, according to Bloomberg, Iranian government spokesman Ali Rabiei told a news conference that South Korea would release $1 billion in frozen money as a first step toward resolving the issue, without giving further details on how it would be used.

However, on the same day, Feb. 23, State Department spokesman Ned Price noted that the US and the ROK could discuss the supposed release of Iranian funds, but the money had not yet been transferred. The ROK Foreign Ministry also stressed that American pressure was needed to unfreeze Iranian assets. Thus, Tehran’s claim of an agreement has been refuted.

On February 24, the foreign ministers of the ROK and Islamic Republic of Iran discussed the situation, and Jong Eui-young said that South Korea “is making sincere efforts to release frozen assets,” but recalled that the issue must be resolved in close cooperation with the United States. In response, the Governor of the Central Bank of Iran said that South Korea must pay Iran $1 billion, otherwise Tehran will initiate proceedings in international courts.

On February 25, a US Treasury Department official said that Washington agreed in principle to a partial transfer of Iranian assets to Switzerland, from where they can be sent to Iran under the so-called Swiss Agreement on Humanitarian Trade, the essence of which is that Swiss food, pharmaceutical and medical companies must have a reliable channel of payment to ensure payment for their exports to Iran. Actually, the aforementioned billion was going to be transferred to the purchase of drugs against coronavirus

The conservative media in the ROK accused Iran of diplomatic impoliteness and wishful thinking. However, the commonplace conclusion was that it was all Moon’s fault for failing everything: the government is only engaged in improving relations with the DPRK and cannot conduct skillful diplomacy with other countries.

On March 2, Ned Price said that the US would be willing to discuss with Iran the unblocking of its money in the ROK “to achieve the main goal of Iran’s denuclearization.” He was silent about where, when, and how this issue would be discussed.

On March 10, US Secretary of State Antony Blinken took an even tougher stance: until Iran meets its obligations under the nuclear deal, the US will not ease any sanctions, including the release of Iranian funds in South Korean banks. When asked whether it was true that some of the funds could be transferred, however, Blinken replied that “the report you referred to is simply wrong“. Korean conservative media and experts immediately noted that “Secretary Blinken’s principled approach to frozen Iranian funds is good news for Korean national interests. This allows Seoul to resist extortion, even while making every reasonable effort to cooperate with Tehran. It also sends a signal to North Korea that international sanctions will be strictly enforced, but may be eased if denuclearization agreements are respected.”

On March 16, the ROK and Iran held a video conference that formally focused on expanding bilateral humanitarian trade, and on March 17, Deputy Prime Minister and Treasury Secretary Hong Nam-gi spoke by phone with new US Treasury Secretary Janet Yellen, where the parties agreed to cooperate closely, including on the Iranian issue.

On April 2, 2021, a diplomatic source reported that the tanker would soon be released, and on April 5, Said Khatibzadeh of the Iranian Foreign Ministry added that the case was ending and the court decision would most likely be in favor of the South Korean side.

According to experts, this was related both to the upcoming visit to Iran of Prime Minister Jong Se-kyung and to the fact that 700,000 doses of AstraZeneca vaccine produced in Kazakhstan were delivered to Iran.

On the morning of April 9, Iran released the tanker and it left the port. On board were the captain and 12 crew members who had been released earlier but remained on the ship for maintenance purposes.

On April 11, Jeong Se-kyung left for Iran on a three-day visit. This visit was the first trip of a South Korean prime minister to Iran in 44 years, but it should be remembered that by this time it was already known that at the end of the visit Chong was resigning due to a set of domestic political problems. Therefore, despite the high status of the visit, its real significance was somewhat less than expected, and the visit did not end with anything serious. The sides agreed to expand humanitarian exchanges, including medical cooperation, and to create a special consultative body responsible for preparing economic cooperation projects after the possible resumption of the nuclear deal. The Iranian side again urged Seoul to unblock the money as soon as possible, which was responded to with further assurances that everything possible was being done and a call to prevent Iran from detaining foreign vessels in the future: “The freedom of navigation must be guaranteed.”

In general, during his stay in Iran, Jeong Se-kyung himself was particularly active trying to please Iran and even talked about the importance and profound spiritual significance of Ramadan. It turns out that he has said before that “this money is Iranian money and should be returned to the rightful owner. We have to find a way to return it quickly.” However, the author’s attempt to search for statements by the South Korean prime minister on this topic was unsuccessful. Jeong met with a number of dignitaries, including the speaker of parliament, but was unable to meet with President Rouhani “for various reasons, including the situation with Covid-19.”

And Iran’s First Vice President Jahangiri openly said, “We call on the Korean government to release Iran’s financial resources as soon as possible and solve the problems of recent years through practical compensatory measures.” The vice president regretted that the $1 billion transfer to Swiss banks for the purchase of a coronavirus vaccine did not materialize despite promises by Korean officials: the Korean banks’ actions severely damaged bilateral relations, as it deprived Iran of major foreign exchange resources to purchase medicines and medical equipment in a pandemic. As a result, the image of the ROK has been seriously damaged. There is hope that the situation will improve after Jeong Se-kyung’s visit.

Nevertheless, on April 12, a US State Department official, speaking on condition of anonymity, repeated in an interview with the Ryonhap news agency that the US position on sanctions against Iran remains unchanged. Until Iran goes back on the JCPOA, it won’t get its money back.

Thus, on the one hand, the story of the tanker hijack ended well enough, and the notion that the action had not an environmental but a political purpose was safely confirmed. On the other, Iran’s attempt to push for the return of the blocked funds in this way did not end with anything. Iran received some vaccines and other medical resources, but it was more of a handout than a victory. Finally, this situation shows well the level of independence of South Korean foreign policy on certain issues. Despite the fact that the South Korean leadership did not seem to mind solving the problem, at the first shout from the US in Seoul they stood at attention, not even trying to show displeasure about it. For the author, this is a rather important story that explains both why some countries periodically claim a “lack of sovereignty” in South Korea and the difference in South Korean foreign policy between the populist statements of Moon Jae-in and Co. and Seoul’s actual actions.

Konstantin Asmolov, PhD in History, leading research fellow at the Center for Korean Studies of the Institute of the Far East at the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook“.

 


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