What Happened to $1 Billion of Iranian Funds Frozen in South Korea?

The government of President Ebrahim Raisi has repeatedly talked about $7 billion of funds frozen in South Korea because of US sanctions, but it was announced last week that, as part of a prisoner exchange deal between the Islamic Republic and the United States, $6 billion of these assets would be made available for Iran to buy humanitarian goods. Now the question is: What happened to the remaining $1 billion?

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Rumors regarding the release of Iran's assets blocked in South Korean banks had been repeated so many times in the past that this time around it was first met with the usual jokes and sarcastic remarks. But this time the rumors came true and Iran's funds in South Korea are expected to be unblocked.

However, depending on who is talking, there are still different narratives about how these assets are to be used. "Essentially, the funds can only be accessed for food, medicine, medical equipment that would not have a dual military use," White House National Security Council spokesman John Kirby said on August 11. "And there will be a rigorous process of due diligence and standards applied with input from the US Treasury Department."

7, 8 or 6 Billion Dollars?

However, what has received more attention than the dispute over Iran's access to these funds is their announced value, which has suddenly decreased from the previous $7 billion to $6 billion.

In July 2020, while complaining about the conduct of the South Korean government, Ali Rabei, President Hassan Rouhani’s spokesman, announced that Iran's blocked assets in South Korea amounted to $8 billion.

​A month later, Hossein Tanhaei, head of the Iran-South Korea Chamber of Commerce, said that "South Korea is not returning Iran’s $8.5 billion."

After that, however, all the reports about Iran's blocked assets estimated their amount to $7 billion. "The money that South Korea owes the Central Bank is currently $7 billion, but the payments are supposed to start with at least $1 billion,” Abdolnaser Hemmati, the then governor of the Islamic Republic’s Central Bank, said in March 2021.

There is no definite and clear answer to the question of how the blocked $7 billion fell to $6 billion right at the time when the US agreed to unblock the assets, but there are a few likely scenarios.

Oil Money in Exchange for Ambulances and Covid Vaccines

One speculative scenario is that part of the blocked assets were already used to pay for the purchase of humanitarian items. In his statements, Hemmati talked about using $1 billion of the blocked assets, but it is not known whether this has happened or not.

Also, in January 2021, Hemmati reported that South Korea was willing to use some of the funds to deliver ambulances and Covid test equipment to Iran. Of course, he added  that "the issue of Iran's blocked assets in South Korea cannot be solved with 20 or 50 million dollars and Korea must return $7 billion to Iran plus interests because Korea is currently using Iran's funds."

A few months earlier, Eshagh Jahangiri, Rouhani’s first vice president, criticized South Korea and implied that the country’s government was not allowed to use blocked Iranian funds in exchange for sending to Iran Covid vaccines made in that country.

Nevertheless, in April 2021, Tanhaei reported that $30 million of frozen Iranian assets were withdrawn by the South Korean government in exchange for Covid vaccines.

Although in the end we do not have a clear figure of Iran's use of blocked funds in South Korea, it is extremely unlikely that these cases could amount to $1 billion.

Another scenario to explain the $1 billion drop in the value of the blocked assets is the change in the exchange rate between the won, the South Korean currency, and the US dollar.

When Iran sold its oil and petroleum products to South Korea, it had priced them in US dollars, but the proceeds were kept in Korean wons because the initial US sanctions had denied Iran access to US dollars in South Korean banks.

Iranian assets in South Korean banks were blocked in 2018, when President Donald Trump unilaterally withdrew the United States from the nuclear agreement known as the JCPOA between Tehran and world powers. The value of the won against the dollar has since decreased by 14.6 percent. As a result, the value of the blocked Iranian assets in the dollar, previously announced to be $7 billion, has decreased by more than $1 billion. 

If we limit our timeframe to the last two years during which the won lost nearly 12.6 percent of its value to the US dollar, this loss of value would amount to $882 million.

Also, Iranian officials have repeatedly complained about the monthly fees charged by South Korean banks to keep Iran’s frozen assets. If we add these charges to the losses caused by the drop in the exchange rate of the won, we would get an even greater loss.

But even these calculations in order to find traces of the $1 billion that have gone up in smoke are not the only losses to the Iranian economy because this money must travel a long and winding road before reaching banks in Qatar, as stipulated in the prisoner exchange agreement.

Converting wons into euros, transferring the euros to banks in Germany and Switzerland and then sending them to accounts in Qatar require the payment of commissions, wages and bank fees at each stage, which would amount to a considerable sum when billions of dollars are involved.

The risk of a drop in the value of Iran's foreign exchange reserves and assets which are kept in currencies such as ruble, yuan, won and other currencies, is a likely prospect for its frozen assets that has now been realized in the case of blocked assets in South Korea.

The dispute over Iran's blocked $7 billion assets in South Korean banks, which has now dropped to $6 billion, has reached its final stages, but Iran’s loss due to its inability to sell oil and other products or its lack of access to the usual tools for transferring its revenue from exports, is much higher than such amounts. In just one case, the inability to sell 1 million barrels of oil per day at the average price of $66 per barrel in the last 10 years due to sanctions has cost Iran more than $242 billion.

In a tweet on August 12, Hemmati, the former governor of the Central Bank, estimated this loss of revenue at more than $3 billion per year, or $360 billion over 10 years.

What is sad is that, while the Iranian economy is deprived of 2 to 3 billion dollars per month due to its inability of to sell oil and petroleum products, access to the blocked assets in South Korea that can be used only to purchase items such as food, medicine or medical equipment is now being sold to the Iranian public as an achievement by Raisi’s administration.