SEOUL, KOREA - Korea's automotive parts makers such as Hyundai Wia are in danger of losing the money from selling auto parts to Iran.

 

As the United States government extended the sanctions on the pariah nation to be in effect on July 1, it has also banned financial transactions such as payments for bills payable. To make matters worse, most Korean banks have stopped releasing the money wired by Iranian importers even before the sanctions go into effect.

 

According to the Ministry of Trade, Industry, and Energy and auto parts industry sources on June 26, as many as 1,300 auto parts suppliers will be affected by the newly expanded sanctions. "Executive Order 13645" issued by the U.S. government on June 3 imposes sanctions on any person that engages in significant transactions relating to the sale of significant goods or services for use by Iran's automotive sector, including goods used in the manufacture or assembly of trucks, cars, motorcycles and other vehicles in Iran.

 

The annual volume of auto parts exported to Iran is US$200 million. Iranian auto makers assemble cars from imported cars and semi-assembled parts on a complete knock-down basis. The number of cars produced in this way in Iran was 1.64 million. For example, Iranian auto manufacturer Pars Khodro produced 240,923 Kia Pride cars for one year between March 2011 and February 2012. Given Hyundai Wia supplies 95 percent of its parts to Hyundai and Kia, the new sanctions will hurt the company's bottom line acutely.