Korean carmakers under increasing pressure to hike prices amid Middle East unrest

Gasoline and diesel prices are displayed at a gas station in Seoul, Sunday. Yonhap

The escalating military conflict in the Middle East may force local carmakers to increase their vehicle prices, as soaring oil prices will result in higher vehicle production and transportation costs, according to data and experts.

West Texas Intermediate (WTI) crude oil was traded at around $65 per barrel on June 10, shortly before the armed conflict between Iran and Israel began, but it has since risen to $73 as of Monday amid growing geopolitical risk in the region.

The war between the two countries reached a deeper phase after the United States joined the regional conflict by bombing Iran’s nuclear facilities.

Soaring oil prices come as a major risk to the Korean economy in particular, as the country relies heavily on imports of crude oil from the Middle East. Korea sources more than 70 percent of crude oil from the region.

Major export-driven manufacturing players, such as carmakers, will be hit hardest by the latest geopolitical uncertainty, as they will have to increase spending on overall production and face supply chain issues due to soaring oil prices.

Experts argued that automakers will come under increasing pressure to raise prices for their end products to cover costs.

“Carmakers and other manufacturing firms will be forced to raise prices for their products due to the regional conflict,” Kim Dae-jong, a professor of business administration at Sejong University, said. “There are few countermeasures that they can take for the time being due to Korea’s energy reliance on the Middle East.”

Local automakers, such as Hyundai Motor and Kia, however, cannot push aggressive price hikes due to consumer sentiment. They are already under pressure to increase auto prices as a result of the "retaliatory" 25-percent auto tariff on all imported cars by the U.S.

Israeli security forces look on as a digger clears the rubble of a destroyed building at the site of an Iranian strike that hit a residential neighborhood in the Ramat Aviv area in Tel Aviv, Sunday. AFP-Yonhap

“Carmakers, for their part, cannot take any game-changing actions to tackle the risk,” Kim said. “The government should take steps to reduce its oil import reliance on the Middle East and increase its import channels to the United States and other countries, so local firms can reduce damages from any future recurrence of a similar case.”

According to data from the Korea Institute for Industrial Economics & Trade, sales of local vehicles fall 0.68 percent when the international oil price jumps 1 percent.

Other data also showed that soaring oil prices will dampen the country’s export momentum for similar reasons.

Data from the Korea International Trade Association showed that Korea’s total exports will drop by 0.32 percent under the scenario of an oil price hike of 10 percent.

Officials from the industry also said that customers show a growing tendency to delay planned vehicle purchases during periods of soaring oil prices.

A conceptual image of Hyundai Motor Manufacturing Middle East in Saudi Arabia, which is scheduled to start its operation in 2026 / Courtesy of Hyundai Motor

“Potential customers are concerned over expanded spending for maintenance costs due to the oil price hike, so they are less likely to purchase typical vehicles with internal combustion engines under the current geopolitical uncertainty,” an official from the auto industry said.

This may come as a boon for electric vehicles (EVs) that do not require oil, but a shift is far from certain, according to the official.

“In most cases, EV prices are higher than traditional gasoline cars, so most price-sensitive customers do not consider purchasing EVs simply due to increased maintenance burdens,” the official said.

Following the start of the Israel-Iran conflict this month, Hyundai Motor and Kia decided to close down showrooms in Israel, following guidelines from the local government. Both carmakers are closely monitoring the unrest.

However, the carmaker will continue construction of the Hyundai Motor Manufacturing Middle East in Saudi Arabia, as the country will feel only limited impact from the latest conflict. The facility, a joint venture between the carmaker and Saudi Arabia’s Public Investment Fund, is Hyundai Motor’s first production line in the Middle East.

Kim Pil-soo, an automotive technology professor at Daelim University College, said the oil price hike, if prolonged, will negatively affect local carmakers in terms of their earnings.

“Automakers here will be exposed to greater risk due to rising oil prices, but the short-term impact is limited,” Kim said. “Of particular concern is the U.S. tariff risk. The worst-case scenario for local carmakers is a possibly prolonged double whammy of U.S. tariffs and international oil price hikes.”

Lee Ho-geun, an automotive engineering professor at Daeduk University, pointed to carmakers’ need to realign their production schedules with reduced demand for gasoline or diesel cars following an oil price hike.

“Carmakers will have to change their production schedule for each type of car, such as EVs, hybrids and cars powered by internal combustion engines, if the oil price rise lasts for a long period of time, as demand for EVs and hybrids will rise under this scenario,” Lee said.