South Korea in search of alternative source for Iranian oil following the U.S.-European Union-backed sanctions on Tehran's oil sector has clinched a deal with Saudi Arabia to buy Saudi crude in the next 20 years.
Described as unprecedented in the oil industry, the long-term contract was signed by South Korea's third largest refiner S-Oil with Saudi Aramco in Riyadh on Wednesday during a three-day visit to the Kingdom by South Korean President Lee Myung-bak.
"This long-term contract points to their (South Koreans) faith and immense confidence in Saudi Arabia; they don't want to look anywhere else and are comfortable with Saudi Arabia," the Arab News quoted a Dhahran-based oil expert as saying. "This is a win-win situation for both the producer and the consumer," he added.
The Indians and the Chinese, for example, have tried to buy oil from multiple producers, but the South Koreans stuck only to Saudi Arabia for their energy security, the report said.
At the contract-signing event, S-Oil Executive Vice-President Kim Dong-cheoul exchanged a copy of the 20-year crude supply contract with Saudi Aramco Senior Vice-President Khalid Al-Buainain in the presence of Petroleum and Mineral Resources Minister Ali Al-Naimi, Saudi Aramco CEO Khalid Al-Falih and South Korea's Knowledge Economy Minister Hong Suk-woo.
"The recently heightened military tensions around Iran have made the international supply and demand of crude oil extremely unstable," an S-Oil official was quoted as telling the media. "At a time like this, we have been guaranteed crude oil supply from Saudi Arabia, the world's largest oil producer, allowing stable operation of our refineries," he said.
According to S-Oil, the deal will ensure stability of its refinery operation despite the sanctions on Iranian oil and that country's threat to block the Strait of Hormuz shipping channel.
S-Oil is South Korea's third-largest refiner with 669,000 barrels per day capacity and Saudi Aramco supplies almost all the crude it processes into fuels. Saudi Aramco owns 35 percent stake in S-Oil.
Since S-Oil's refineries process about 669,000 barrels of crude daily, the annual supply from Saudi Aramco is estimated to be about 230 million barrels, or 30 percent of South Korea's consumption of petroleum products.
The oil deal is in addition to another one signed by the two countries to boost bilateral trade and cooperation in the health sector, said South Korean Embassy spokesman Woong Chul Pak. He said that "Riyadh and Seoul are also working on a proposal to sign a defense pact in the near future."
President Lee had talks with Saudi Defense Minister Prince Salman and agreed to significantly bolster defense cooperation to improve relations in non-economic sectors. Both countries agreed to conclude the defense cooperation pact at at an early date, possibly in the first half of this year.
"The Kingdom will also post a military attaché at the Saudi Embassy in Seoul, who will be the Kingdom's first military attaché in a Far East nation," said an unnamed diplomat.
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