"Knocked and Knocked Again"...Youngjeon Choi Breaks Through Payment Hurdle for Russian Naphtha

"We knocked and knocked again. No other country made as much effort as Korea did."

Youngjun Choi, Financial and Economic Officer at the Embassy of the Republic of Korea in the United States, Ministry of Strategy and Finance

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On April 15 in Washington, Youngjeon Choi, Minister Counselor for Economic Affairs at the Embassy of the Republic of Korea in the United States, reflected on how he resolved the final hurdle of "payment issues" for importing Russian naphtha. With the prolonged closure of the Strait of Hormuz blocking the supply of naphtha-often called "the rice of industry"-the United States decided to ease sanctions on Russian naphtha imports for only one month. LG Chem secured a deal to purchase 27,000 tons of Russian naphtha. However, dollar intermediary banks such as J.P. Morgan, HSBC, and Standard Chartered announced they could not process the payment, putting the transaction in jeopardy. As an alternative, domestic banks considered settlement in Russian rubles or Chinese yuan, but this also stalled due to concerns over secondary boycotts-sanctions on financial institutions from third countries dealing with Iran or Russia. A clear assurance from the United States that settlement in non-dollar currencies would be acceptable became critical. The Ministry of Trade, Industry and Energy began consultations through the Ministry of Strategy and Finance.

Minister Counselor Choi described the process of obtaining a definitive answer from the United States as "intense." The U.S. Treasury Department is a formidable authority, and within it, the Office of Foreign Assets Control (OFAC) is notoriously difficult to contact. Choi and Deputy Minister Counselor Taeyeon Kim persistently knocked on the door of the U.S. side, day and night. When the relevant official went on a business trip and channels of communication were about to be cut off, Choi's persistent appeals finally secured a meeting with the acting official. Choi explained the urgent need for Korea to import naphtha, and ultimately received written assurance that there would be no sanctions for settlement in non-dollar currencies. This information was immediately relayed to the Ministry of Trade, Industry and Energy and LG Chem, and the payment was finally completed. Choi noted, "It is rare for such sensitive assurances to be given in writing," adding, "Japan did not even attempt this, as they had no expectations."

The 27,000 tons of Russian naphtha imported by LG Chem is a small amount compared to Korea’s average monthly naphtha consumption of 4 million tons. However, it is significant in that the government and private sector worked together to find an alternative supply to the Middle East. Korea relies on imports for 45% of its domestic naphtha demand, and 77% of those imports come from the Middle East, meaning that a blockade of the Strait of Hormuz would inevitably impact the entire domestic industry. Yoonchul Koo, Deputy Prime Minister, who was in Washington for a G20 meeting, also heard the news. Deputy Prime Minister Koo said, "The OFAC is known to be passive and strict," adding, "This achievement has been reported to the President, and reward procedures are currently underway."

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