South Korea’s POSCO Engineering & Construction had signed a $1.6 billion memorandum of agreement with the Iranian steelmaker, Pars Kohan Diar Parsian Steel (PKP), in May 2016, to build a steel mill incorporating POSCO’s proprietary technology in Iran’s Chabahar Free Trade-Industrial Zone.
The plant was to use FINEX steelmaking technology, allowing the direct use of cheap iron ore fines and non-coking coal as feedstock, resulting in significantly lower operating costs and emissions than a blast furnace.
To recap the Saudi connection, in late 2015, POSCO sold a 38% stake worth $1.1 billion in its E&C division to Saudi Arabia’s Public Investment Fund, giving the fund the right to appoint two board members, according to Financial Tribune.
Iranian-Saudi relations were increasingly fraught with political tension over the next year and a half, bringing POSCO E&C’s new board members to not be so keen on investing in Iran, according to a July 2017 letter sent by a POSCO official to PKP and recently unveiled in the local media.
“This project mandatorily requires the decision of the board of directors. However, as relations between Iran and Saudi Arabia rapidly grew worse after a severance of diplomatic ties last year, outside directors in the board meeting are having negative stances on Iran projects, especially those requiring investment and JVC establishment,” the letter said.
Emphasizing the political nature of the issue, the letter underlines that POSCO is having difficulty “convincing and reaching consent on the unfavorable opinion from the outside directors”.
South Korea, one of Iran’s top trade partners, imposed sanctions against Iranian companies and individuals in 2010 under growing pressure from the United States to join sanctions mandated by the United Nations Security Council over Iran’s nuclear energy program.
The country was quick to make a comeback, however, as the sanctions were lifted in 2016 as part of Iran’s nuclear deal–also known as Joint Comprehensive Plan of Action.
POSCO’s decision to pull out of the deal with PKP does seem to be legal, as an MOA is not legally binding. And the situation may herald more trouble for Iran, as the kingdom’s PIF and Saudi Arabian Monetary Authority are still on the hunt for other assets around the world.
The kingdom and its (Persian) Gulf Cooperation Council allies can ramp up pressure against Iran and dampen the economic benefits of other post-nuclear deals for the country.