With the sanctions on Iran recently lifted by the European Union and the United States in January of this year; many nations have been in a race to reestablish business partnerships with Iran (1). Many European countries as well as China, Japan and South Korea have already taken action in reconstructing their relationships with Iran, who own one of the largest shares of natural resources in the world. Despite swift actions by other nation-states, South Korea currently maintains a strong standing connection with Iran as they were one of the few nations that did not completely break ties with Iran during the sanctions, earning them a respect and trust from the Iranians.
This relationship is beneficial for both parties as South Korea will gain better access to the abundance of natural resources that Iran has to offer while Iran will rely on Korea to aid them in the rebuilding of their infrastructure and health care facilities. Prior to the sanctions, South Korea was one of the largest importers of Iranian oil (1). This rekindled relationship will allow Korea to grow beyond its original trading status with Iran, which was stood at 17.4 billion USD in 2011. South Korea has a goal of growing this number to over 30 billion USD in the next five years (2). Although most of their trade will be concentrated in the oil industry, Korea has already signed over a dozen memorandums agreeing to aid in the restoration of Iranian infrastructure.
One of the biggest commitments South Korea made to Iran was to complete the remaining construction of the expressway which connects Teheran to the Caspian Sea. This has been on Iran’s agenda since 1997 when the construction commenced before the revolution and was expected to be completed by 2006. Since then the project has changed hands a number of times, it was originally rewarded to the Mostazafan Foundation, however China joined the project in August of 2002 (3) (1). Chinese corporations where not able to successfully implement the project entirely and left the expressway at a standstill (4).
This new expressway—sometimes called the Tehran-North highway or the Tehran Shomal highway—will come with a variety of vital benefits. The current road, Chalus freeway, is susceptible to avalanches in the winter and rockslides year round making it one of the most dangerous roads to travel in the world. The new road will be a straight four lane highway and will include an assortment of long and short tunnels that will cut through the mountains. This will make travel safer and faster while also creating a vital connection from Iran to Central Asia. However some Iranians responded with backlash when this project was announced as they saw it as benefitting mainly the wealthy, allowing them to easily access destination vacation resorts on the Caspian Sea. Despite this opposition the Iranian government continues to push the project forward (5).
The signing of the Memorandums of understanding for the completion of construction on the Tehran-Shomal expressway is an opportunity for South Korea to export their technology and engineering acumen. Iran played a major role as one of the nations who awarded a large amount construction projects to Korea, a country that has been struggling with declining earnings and low orders recently.
For this project in particular, a South Korean engineering company, Daewoo, has signed a 1.5 billion USD contract that will put them in “charge of engineering, procurement and construction” of the project (6). This was only made possible after the Korean export-import bank took several steps to allow business to flow between the countries more easily. The export-import bank of Korea known as Exim Bank had to secure Korea’s ability to make secure loans to Iran. In March Exim Bank signed a 15 billion USD agreement with Iran’s central bank to ensure that Iran could receive loans when they were conducting business with South Korean corporations (7). Exim Bank also raised Iran’s credit score from a C2 to C3 which will allow them to secure greater amounts of financing (8).
If Daewoo is unable to successfully meet the requirements of the memorandums of understanding for the project, Iran’s Construction and Development of Transportation Infrastructure Company may award the project to the IRGC conglomerate Khatam al-Anbia. This loss would negatively impact South Koreas economic goal of expanding exports (4).
(1) "South Korea and Iran to Sign Major Trade Deals." Aljazeera. Al Jazeera Media Network, 2 May 2016. Web. 03 Sept. 2016.
(2) "Park: S. Korea, Iran Can Create Win-win Biz Situation." Yonhap News Agency. Yonhap News Agency, 3 May 2016. Web. 3 Sept. 2016.
(3) J., H. "'First Section of Tehran-Shomal Freeway to Be Completed March'" Tehran Times. Tehran Times, 20 June 2016. Web. 03 Sept. 2016.
(4) "IRGC Construction Base Could Replace Koreans in Freeway Project." The Iran Project. Tsnim News Agency, 08 May 2016. Web. 03 Sept. 2016.
(5) "Chinese Said to Fund Stalled Highway to Caspian." International Iran Times. Iran Times, n.d. Web. 03 Sept. 2016.
(6) Song-hoon, Lee. "Daewoo E&C Signs US$11.5 Billion Worth of MOUs." Business Korea. Business Korea Co., 5 May 2016. Web. 1 Sept. 2016.
(7) Jae-won, Kim. "Eximbank Signs $15 Bil. Financial Package with Iran." Koreatimes. N.p., 03 May 2016. Web. 04 Sept. 2016.
(8) "Korea Bank Upgrades Iran Rank." Financial Tribune. Financial Tribune Daily and Contributors, 17 Jan. 2016. Web. 03 Sept. 2016.
Image: © Tawatchai Prakobkit | Dreamstime.com - South Korean won currency and finance business.
Emilia Garliepp is a Business Administration major at the University of Southern California. She comes from a small farming town in Northern California where she learned early on that the world is both small and big at the same time. Emilia currently works at the Marshall School of Business as a Student Technician. Previous professional positions include Quality Control Analyst at California’s largest fresh cherry and apple packer and a Research Assistant for a bankruptcy law firm. Outside of GIT she is involved in Marshall Business Network, Students Organize for Syria and holds the position of External Philanthropy Chair for Alpha Phi. Emilia is interested in travel, international commerce and helping others. After graduating she plans to obtain her MBA and work in the international arena.