SEOUL • South Korea and Iran have agreed on a way forward that could see billions of dollars of frozen oil money unblocked, Seoul said yesterday, but signalled that the agreement was effectively subject to US approval.

Teheran last month seized a South Korean-flagged tanker in sensitive Gulf waters, citing the ship's "repeated infringement of maritime environmental laws".

The seizure of the tanker came after Teheran had urged Seoul to release billions of dollars of Iranian assets frozen in South Korea under United States sanctions over its nuclear programme.

The South's Foreign Ministry said Iran's central bank governor and Seoul's ambassador had reached an agreement in Teheran.

"Iran has agreed to our proposals to use the funds," the ministry said in a statement.

Seoul will free US$1 billion (S$1.33 billion) in an "initial step" that could eventually resolve the dispute, Iranian government spokesman Ali Rabiei said at a news conference in Teheran yesterday.

Iran has said it wanted to use the funds to buy medicines during the coronavirus pandemic.

But the South Korean ministry said: "Actual lifting of the fund freeze will have to go through consultations with related actors including the US."

The comment suggests that Washington - which is insisting Iran move first in the nuclear stand-off - will have a de facto veto on any transfers.

The Iranian government released a separate statement on the deal, quoting Central Bank of Iran governor Abdolnasser Hemmati as saying it would continue to demand compensation from South Korean banks.

"The South Korean side needs to make a lot of efforts to erase this negative record," he added.

Teheran was a key oil supplier to resource-poor South Korea until Washington's rules blocked the purchases.

According to Iranian government spokesman Mr Rabiei, Teheran has US$7 billion of funds blocked in Seoul.

He said talks were also under way with Japan, Iraq and Oman to release Iranian funds stuck in those countries.

AGENCE FRANCE-PRESSE, BLOOMBERG