SEJONG — South Korea’s economy faces potential headwinds from surging oil prices linked to geopolitical tensions involving Iran, according to a warning issued Monday by a state-run research institute. The country’s significant reliance on Middle Eastern crude oil makes it particularly vulnerable.
The Korea Institute for Industrial Economics and Trade (KIET) indicated a possible downward revision to its economic growth forecast for the year, currently projected at 1.9 to 2 percent, if sustained high oil prices drive up production costs in the coming months.
“Geopolitical risks in the Middle East are likely to affect the Korean economy by increasing volatility in the global energy supply chain and driving oil prices higher,” stated Hong Sung-wook, an analyst at KIET, during a press briefing. The analysis highlights the potential for increased economic uncertainty.
KIET’s analysis suggests that a 10 percent increase in oil prices from current levels would raise production costs in Korea’s manufacturing sector by an average of 0.71 percent. The petrochemical and rubber-plastic industries are expected to be most affected by the increase in crude oil prices.
Dubai crude prices have already seen a substantial increase of roughly 40 percent, climbing from around $72 before the conflict escalated to approximately $103 during the final week of February. This sharp rise underscores the volatility in the global oil market.
With approximately 70 percent of its crude oil imports originating from the Middle East and primarily passing through the Strait of Hormuz, South Korea is highly susceptible to regional disruptions. Supply chain vulnerabilities are a major concern for the nation’s economic stability.
While the immediate impact on exports is projected to be limited, KIET cautioned that broader economic consequences could intensify if energy prices remain elevated. Sustained high energy costs present a significant risk to economic growth.
Korea’s export volumes have shown consistent growth for five consecutive years, reaching $20.4 billion in 2025, a 3.8 percent increase year-over-year. Shipments to the Middle East currently represent only about 2 to 3 percent of Korea’s total exports, suggesting a potentially modest immediate trade impact from the conflict.
However, any disruption in the Strait of Hormuz could strain global logistics networks, resulting in increased shipping costs and delays in energy supplies, according to Hong. These disruptions could have cascading effects across various sectors of the economy.
“Korea is highly dependent on the Middle East for both crude oil and LNG (liquefied natural gas),” Hong emphasized. “The government should consider supply stabilization measures, including diversifying energy sources and utilizing strategic oil reserves.” Strategic energy planning is critical for mitigating potential risks.
Hong also cautioned that a prolonged surge in oil prices could heighten the risk of stagflation, where higher energy costs contribute to inflation while simultaneously slowing global economic growth. This scenario poses a complex challenge for policymakers.
Potential delays in major projects underway in the region — including Saudi Arabia’s Neom city development and the United Arab Emirates’ Stargate initiative for AI data centers — could also negatively affect Korean companies seeking to participate in these projects and secure new contracts. International project delays could impact Korean business interests.
