South Korean refiners are likely to pass on the cost of replacing Iranian crude to consumers in the form of higher gasoline prices when U.S. and European sanctions take effect in July, according to Fitch Ratings Ltd.
The country’s refiners, including SK Innovation Co. (096770) and Hyundai Oilbank Co., are expected to pass on raw material costs to consumers and emerge “largely unscathed” from sanctions on importing Iranian oil, Shelley Jang, an associate director for energy and utilities in Asia, said in an e-mail today. South Korea imported about 10 percent of its crude, or 930 million barrels a day, from Iran last year, she said.
The South Korean government’s ability to restrain retail fuel prices is limited, she said. “Gasoline prices are likely to rise and weaken consumer sentiment.”
Traders and refiners shipped North Sea crude cargoes to South Korea after a Free Trade Agreement between the European Union and the Asian nation took effect in July 2011. Under the agreement, refineries are exempt from a 3 percent import tax on crude imports from the EU.
The increase in demand for North Sea cargoes in recent months “is evidence of South Korean refiners’ need to replace Iranian crude with other preferred sources,” Jang said. “Procuring oil from the Singapore spot market is also another possibility, depending on pricing dynamics,” she said.
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