The European Union decided to impose the embargo on Iranian crude oil starting this Sunday as planned, signaling setbacks in crude supply to Korea and a rise in petroleum product prices.

The EU said in a statement on Monday after a meeting of the foreign ministers of the 27 member countries that all contracts for importing Iranian oil will have to be terminated from July 1. European companies will also be prohibited from insuring shipping companies that transport Iranian oil as part of the sanctions aimed at making the Middle Eastern country give up its nuclear program.

Crude oil tankers are required to have insurances on their cargo, hulls and for protection and indemnity. Because of their potential danger, uninsured tankers are not allowed to pass through any territorial waters.

Korean shipping firms will be unable to operate tankers carrying Iranian crude from July 1 since all of them are partially insured by European companies.

Considering the time taken for shipment, Korea won’t be able to receive Iranian crude starting late next month.

Iranian oil accounted for 9.4 percent of Korea’s crude imports ― or 87 million barrels out of the total 930 million barrels ― last year.

SK Energy and Hyundai Oilbank import about 10 percent and 20 percent of their crude from Iran, respectively.

Officials in the shipping and oil refining industries expect the EU sanctions to deal a blow to Korea’s crude supply and cause prices of petroleum products to surge.

Local analysts said last month that gasoline prices in Korea could rise by about 300 won per liter in the wake of the EU’s sanctions on Iran.

Korean exporters to Iran are also likely be hit hard by the EU embargo as Iran pays them with the money received from Korean oil importers.

About 2,700 small and medium-sized Korean firms that export around $7 billion worth of products to Iran annually are concerned they might not get paid in time.

The Seoul government, which failed to get a waiver from the EU on the insurance ban, said there won’t be major problems in the crude supply and demand for the time being as Korean refiners have continued to reduce imports of Iranian oil this year and secured volumes from other countries such as Qatar to replace Iranian crude.

The Ministry of Knowledge Economy said it will tighten the monitoring system for petroleum supply and demand while continuing efforts to secure additional volumes from alternative sources.

The ministry also said it will find ways to prevent an abrupt halt in small companies’ exports to Iran and take steps to support them to diversify export destinations.

Korea’s petroleum reserve as of the end of March amounts to 181.2 million barrels ― 89.6 million barrels by the government and 91.6 million barrels by the private sector, which is enough to supply the country for 75 days, according to the ministry.

By Kim So-hyun (sophie@heraldcorp.com)