South Korea is considering cutting its exports to Iran - mainly steel, cars and electronics - to reduce the risk of payment defaults as sanctions strangle Iran's earnings from oil exports, two sources with knowledge of the issue said, Reuters reported.
Export quotas could be imposed on products including Samsung Electronics' mobile phones and Hyundai Motor's vehicles, one of the sources said.
The sources, who could not be identified due to the sensitivity of the issue, both have direct knowledge of the matter through dealings with the government bodies responsible for trade with Iran and the possible imposition of the regulations by South Korea.
The Ministry of Knowledge Economy, which is responsible for crafting South Korea's response to demands from the United States that Seoul implement cuts to its imports of Iranian crude, denied there were plans to limit exports.
One source said the possible imposition of an export quota was being discussed across three ministries; economy, finance and foreign.
"It was supposed to be in effect in late May but now it's put on hold. Possibly it will come in the second half (of the year)," the source said. He did not know why the quota did not take effect in May.
International sanctions have already made it difficult for Iran to repatriate oil payments from South Korea and other countries. The Iranian central bank has accumulated the equivalent of $5-$6 billion in won accounts in South Korea, industry sources have said.
U.S. sanctions have gradually tightened the noose around Iran's foreign exchange earnings, making it difficult for buyers of its crude to make payment in dollars, the main currency used in international oil trading.
The risk for South Korea is that Iran will struggle to pay for its imports from South Korea, especially when new sanctions from both the United States and the European Union take effect in July.
Around 2,000 South Korean companies are exporting to Iran, according to the government.
Samsung Electronics and LG Electronics accounted for a combined 30 percent of Iran's mobile phone market, Korean major newspaper Dong-a Ilbo reported in January.
Under existing regulations, South Korean exporters must get prior clearance from the government for the product they plan to sell to Iran. When that is done, if the amount exceeds the equivalent of 40,000 euros ($31,500), the exporter needs to submit a formal request for approval to the Bank of Korea for the transaction.
Iran had a $5.3 billion trade surplus with South Korea in 2011, official data shows. However, South Korean exports to Iran surged by 49 percent in the first quarter of 2012 from a year ago to $1.7 billion. Oil imports fell by 13 percent to $2 billion, narrowing the surplus.
"The export quota is a necessary measure against an upward trend in exports to Iran as the balance at these accounts is drying up as Iranian crude imports are going down," the second source said.
South Korea, a major buyer of Iranian crude along with China, India and Japan, could see shipments come to a halt if a European Union ban on insuring tankers carrying Iranian oil comes into effect in July.
Seoul is seeking a waiver on possible U.S. sanctions by reducing its oil imports from Iran and has been negotiating with the EU over the insurance ban.
Asian clients are the biggest buyers of Iran's crude exports, which total around 2.2 million barrels per day.
Data from state-run Korea National Oil Corp showed South Korea's Iranian crude imports fell by more than 20 percent year on year to 195,000 barrels per day in the first quarter of this year.
Edited by: S. Isayev