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Iran’s Investment in South Korea in 1970’s Has Become 5th Largest Oil Refinery in The World

August 2, 2022

In recent months, as the Russia-Ukraine war rages on and supplies of petroleum products become more critical for consuming nations, refinery margins around the globe have increased (i.e. operational profitability of oil refineries have improved). This increase has been particularly evident in South-East Asia as the countries open up their economies post COVID Pandemic (See Figure 1). 

 

These healthy margins are expected to remain for the coming months, which is good news for refineries such as S-Oil in South Korea. Few people know that S-Oil was originally established by Iran’s investment during Shah’s regime in 1976, under its original name “Korea-Iran Petroleum Company”.

In our previous article, we shared with you the investment of Iran’s deposed monarch, Mohamad Reza Shah Pahlavi in UK’s offshore oilfield. In this day and age, investment by Middle Eastern countries such as Kuwait, UAE and Saudi Arabia in foreign lands is fairly commonplace. However, in mid-1970’s, the Shah was well ahead of this pack. When we consider that South Korea in mid-1970’s was a relatively poor country compared to Iran, Shah’s decision to invest proves to be even more visionary. If you look at Figure 2, it shows that in 1976 Iran’s per capita GDP was more than 2.5 times South Korea. However, over the years as Iran’s position in the world has declined, South Korea has become an industrialised superpower and in 2020, South Korea’s GDP per capita was more than 13 times Iran.

 

One of the beneficiaries of this phenomenal growth could have been Korea-Iran Petroleum Company. In 1980, however, it changed the company name to Ssangyong Oil Refining Company and in 1991 Saudi Aramco bought 35% of the shares of this company and signed a long term crude supply deal. The same strategy that Iran was pursuing almost 20 years earlier, which was to integrate Iran’s crude supply with refining products in a potentially growing region of the world. In 2015, Saudi Aramco became the largest single shareholder of S-Oil and today the CEO is a Saudi national called Hussain A. Al-Qahtani, who is based in South Korea. After many years of expansion, the S-Oil Onsan refinery has become the 5th largest oil refinery in the world and one of the most sophisticated in terms of technology. Figure 3 compares Onsan refinery with the two largest refineries in Iran.

 

As the saying goes, the boot is on the other foot now, in 1970’s South Korea was desperate for investments from Iran and now Iran is desperate for Korean investments.