Xinhua - South Korea has stopped an investment deal in Iran's steel industry due to Saudi Arabia's influence, Financial Tribune daily reported on Tuesday.

South Korea's POSCO Engineering & Construction signed a 1.6 billion U.S. dollar agreement with the Iranian steelmaker, Pars Kohan Diar Parsian Steel (PKP), in May 2016. Under the deal POSCO was to build a steel mill incorporating the company's proprietary technology in Iran's Chabahar Free Trade-Industrial Zone.

Iran-Saudi relations were increasingly fraught with political tension, bringing POSCO E&C's new board members to not be so keen on investing in Iran, according to a POSCO announcement cited by the daily.

"As relations between Iran and Saudi Arabia rapidly grew worse after a severance of diplomatic ties ... outside directors in the board meeting are having negative stances on Iran projects," the announcement said.

Emphasizing the political nature of the issue, the announcement underlines that POSCO is having difficulty "convincing and reaching consent on the unfavorable opinion from the outside directors."

To recap the Saudi connection, in late 2015, POSCO sold a 38 percent stake worth 1.1 billion U.S. dollars in its E&C division to Saudi Arabia's Public Investment Fund, giving the fund the right to appoint two board members.

According to the agreement with Iran, POSCO 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.