Petrochemical, shipping firms relieved at prospect of Strait of Hormuz reopening

Naphtha cracking facilities in operation at Yeochun NCC in Yeosu, South Jeolla Province, April 1 / Yonhap

The agreement among the United States, Israel and Iran for a two-week ceasefire, conditional on reopening the Strait of Hormuz, prompted cautious optimism Wednesday in Korea's petrochemical and shipping industries, which have suffered fallout from the war in the Middle East.

Despite lingering uncertainty over the peace talks, expectations are growing that vessels stranded near the Persian Gulf may resume shipments of crude and naphtha, a liquid extracted from crude and used to produce raw materials for petrochemical products such as plastic bags, food packaging and cosmetic containers.

"We see the ceasefire agreement itself as a positive signal," an official at one of Korea's major petrochemical firms said on condition of anonymity.

With Korea relying on the Middle East for 45 percent of its naphtha supply, domestic petrochemical firms have reduced or suspended production since the war broke out, suffering a decline in revenue. The cutbacks have fueled concerns over shortages of petrochemical products across industries.

According to the Ministry of Trade, Industry and Resources, a combined 14 million barrels of crude for Korean refiners is currently being carried by four Korean-owned or -operated tankers and three foreign ships stranded in the strait.

Following news of the truce, seafarers aboard stranded vessels also expressed hope that they can resume voyages, according to the union representing HMM's seagoing employees. As of April 1, 26 Korean-owned or -operated ships stranded in the strait were carrying 136 Korean crew members. An additional 37 Korean sailors were also aboard stranded vessels owned by foreign companies.

Once Iran guarantees safe passage through the strait, shipping firms will be able to avoid further losses from maintaining stranded ships and supplying provisions to crews. Data compiled by the Korea Shipowners' Association shows that the 26 Korean ships have suffered a combined loss of $1.43 million a day.

"Although they can ask customers to pay surcharges after shipments, small and medium-sized shipping firms find it difficult to make such requests," an association spokesperson said.

Korean shipping firms, however, have ordered their vessels to wait for the government's confirmation of safety, given Iran's request for coordination with its military for passage through the strait.

"We have been closely monitoring whether ships from other countries pass through the strait safely," an HMM official said Wednesday morning, when the government was still unsure about the reopening of the strait.

Later that day, the Ministry of Foreign Affairs said the government hopes that freedom of navigation for all vessels, including Korean ships, will be restored swiftly and safely through the Strait of Hormuz.

The Ministry of Oceans and Fisheries held a meeting with shipping firms the same day and has decided to continue advising shipping firms against using the route, while helping the 26 Korean ships leave the strait.

Shipping industry officials also noted that vessels will need to "line up" to load and unload cargo before they can leave the strait, saying that operating an empty ship incurs heavy losses. In response to such concerns, U.S. President Donald Trump said his country will help with the buildup of shipping traffic.

Meanwhile, petrochemical firms said it is difficult for them to purchase additional naphtha shipped through the strait, given the possibility that the peace talks could collapse. They also noted that falling international oil prices do not immediately translate into lower naphtha prices.