Planned Iran-U.S. prisoner swap highlights Seoul's role as $6 billion middleman

Planned Iran-U.S. prisoner swap highlights Seoul’s role as $6 billion middleman

SEOUL, South Korea — In what looks like a win-win-win, the pending U.S.-Iran prisoner swap deal is being lubricated by the release of some $6 billion in Iranian dollars that had been frozen in banks here.

President Biden is facing heat in Washington over what critics say is a “ransom payment” to Iran’s theocratic regime, but for resource-hungry South Korea, the accord could open the door to a fresh start in bilateral relations with one of the world’s biggest energy producers.

The deal — which could be executed within days – results from a complex web of multinational, cross-domain diplomacy. International security, U.S. sanctions on Iran, U.S. relations with South Korea, Iran-South Korea relations and a top-level sanctions waiver on transactions with Iran are all in play.

The deal’s basic contours were first released by Iranian and U.S. officials last month. The key green light — a waiver on U.S. sanctions against banks that will handle the fund transfer — was signed by Secretary of State Antony Blinken last week, and Congress was notified earlier this week.

Already officials in Iran, laboring under U.S.-imposed sanctions that have badly crippled the domestic economy, are talking up a revived and expanded relationship with South Korea, one of Washington’s closest allies in the region.

“Now we can open a new chapter in bilateral relations and the Islamic Republic of Iran welcomes any initiative that will help promote ties between the two countries,” Iranian Foreign Minister Hossein Amirabdollahian said in a Sept. 5 phone call with South Korean counterpart, Park Jin, as the deal was coming together, according to an account in the Tehran Times.

South Korean media reports on the call said Mr. Park acknowledged that the funds “belong to the people of Iran,” and said releasing the money could lead to improved bilateral relations in the fields of academia, science, sports and culture.

Seoul found itself caught in the middle of the U.S.-Iranian standoff in 2019 when it froze the Iranian bank accounts, set up to buy South Korean goods such as electronics, steel and autos and partly offset by purchases of Iranian crude oil, after the Trump administration repudiated the 2015 Iran nuclear deal and reimposed U.S. sanctions on Tehran.

The deal, assuming it proceeds, will likely solve a longstanding diplomatic headache for South Korea. Iran repeatedly appealed for access to the blocked funds and in January 2021, Tehran seized a South Korean tanker, the Hankuk Chemi, in the Strait of Hormuz, citing what officials said were “environmental and chemical pollution concerns.”

The tanker and its crew were released after closed-door negotiations in April of that year, amid reports the U.S. permitted South Korea to release $1 billion of the frozen Iranian bank funds.

John Kirby, National Security Council coordinator for strategic communications, told reporters in August the U.S. had worked “extensively” with South Korea to ensure that the transfer of such a large amount would have no impact on South Korea’s currency.

Prior to the reimposition of U.S. sanctions, South Korea, a trade-reliant energy importer that pursues a policy of import diversity, had been a major customer of Iranian oil supplies. It once ranked as one of the world’s top three buyers of Iranian crude oil and was Tehran’s biggest customer in Asia of condensate, or ultra-light crude, according to S&P Global.

But traders remain skeptical that the prisoner deal and the freeing of the bank funds will lead to a quick resumption of South Korean energy purchases from a nation that remains so hostile to the U.S.

“Even if the [frozen] funds are released, it won’t guarantee anything and there’s still a long way to go for the resumption in Iranian crude imports to be allowed,” a condensate trader for a South Korean petrochemical maker, told the financial publication.