Strait of Hormuz closure could deal a blow to Korean businesses through higher oil prices, currency swings, weaker investment
South Korea is on high alert following coordinated US and Israeli strikes on Iran, which resulted in the death of Supreme Leader Ayatollah Ali Khamenei. The Strait of Hormuz has become a major concern, potentially impacting oil prices and industries heavily reliant on the waterway.
The Strait of Hormuz is a vital route for South Korea, which imports approximately 70% of its crude oil and 20% of its natural gas from the Middle East. Disruption to this waterway could have significant consequences for Korean oil refiners, shipping companies, and airlines.
Reports indicate at least three tankers were damaged near the Strait of Hormuz on Sunday, following Iran’s warnings against navigating the area. Brent crude oil prices surged by 13% to $82 per barrel on Monday, with some analysts predicting a potential rise to $100 if the strait is completely closed.
Korean refiners are actively reassessing tanker routes, exploring spot cargo options, and considering long-term diversification strategies to mitigate potential disruptions.
While South Korea’s combined public and private oil reserves, estimated to cover nearly seven months of demand, offer a buffer, sustained disruptions could lead to increased costs across transportation and various industries, negatively affecting the overall economy.
“Even without a formal closure of the Strait of Hormuz, reports of attacks on civilian vessels are leading ships to steer clear of the area, with some turning back or remaining on standby,” stated an official from the Korea International Trade Association (KITA). “Companies should alert buyers in advance to the possibility of unavoidable delays and factor logistics-related risks into contract terms by considering alternative shipping routes.”
KITA estimates that a 10% increase in oil prices would decrease South Korea’s exports by 0.39% while increasing imports by 2.68%. Corporate production costs are projected to rise by 0.38%, with manufacturing businesses facing a more substantial increase of 0.68%.
Shipping companies, including SK Shipping and Pan Ocean, are implementing contingency plans, which may include route adjustments, in anticipation of further escalations.
KITA suggests alternative routes via major Omani ports; however, rerouting could increase freight rates by 50% to 80% and extend transit times by three to five days.
Although direct export exposure to the Middle East is limited, with shipments to seven economies in the region accounting for only 1.9% of Korea’s total exports (approximately $13.7 billion), analysts warn that prolonged conflict could hinder investment and disrupt research and development partnerships in the area.
A surge in oil prices, combined with a weakening Korean won due to global risk aversion, could put further pressure on the aviation sector. Airlines face dollar-denominated expenses for fuel, aircraft leases, and maintenance, making them vulnerable to both energy price fluctuations and currency volatility.
Korean Air, the only Korean carrier operating daily flights between Incheon Airport and Dubai, diverted a Dubai-bound flight back to Incheon mid-air on Saturday and canceled both outbound and return flights on Sunday after the UAE closed its airspace.
“We will closely monitor developments and adjust our schedule accordingly,” stated a Korean Air official, adding that further cancellations are scheduled through Thursday.
In the absence of President Lee Jae Myung, who is currently on a state visit to Singapore, Prime Minister Kim Min-seok convened an emergency ministerial meeting on Sunday. He emphasized the need for close monitoring of logistical risks related to energy supplies and a review of market stabilization measures.
He instructed officials to “develop plans to ensure stable supplies so as to limit the impact on domestic industries and households.”
Prime Minister Kim also called for measures to guarantee the safety of Korean nationals in the Middle East and neighboring countries. As of press time, the Foreign Ministry reported that no Korean nationals in Iran or Israel have been harmed.
