US-Iran deal eases pressure on supply chain, gov't cautious on fuel price cap

Vessels sit in the Strait of Hormuz, as seen from Musandam, Oman, Sunday. Reuters-Yonhap

The United States and Iran are set to sign a peace agreement and reopen the Strait of Hormuz, easing concerns over crude oil supplies and broader disruptions to the global energy trade, but the Korean government is taking a prudent stance regarding the full normalization of supply chains.

U.S. President Donald Trump announced on social media Sunday (local time) that “the Deal with the Islamic Republic of Iran is now complete,” adding he would authorize “opening of the Strait of Hormuz” and the removal of the U.S. naval blockade.

The two countries have agreed on a framework deal to end the war, which is scheduled to be signed on Friday in Switzerland.

The agreement is expected to improve crude import conditions for Korea, which sources roughly 70 percent of its oil from the Middle East as of last year, while also reducing pressures on shipping routes that have been strained for months by the conflict.

The reopening of the critical oil chokepoint is set to help normalize supplies of petroleum and petrochemical products that faced delays and logistical bottlenecks after the war broke out in February.

However, the government is still cautious since a return to normal conditions will take time, even after the peace deal takes effect.

The Industry ministry said it will continue monitoring developments before considering policy adjustments, including its price ceilings on fuel products.

The ministry will announce the seventh price cap for regular gasoline, diesel and kerosene as scheduled this Thursday.

“At this point, the fuel price cap is expected to proceed as planned. We will closely monitor the June 19 agreement and whether conditions in the Strait of Hormuz normalize,” a ministry official said.

The ministry has taken a restrained view on stabilization, noting that oil markets, shipping operations and supply chains are unlikely to recover immediately.

“There is no fixed end date for the fuel price cap,” Minister of Trade, Industry and Resources Kim Jung-kwan said during a recent briefing. “But once the war ends or international oil prices stabilize, our policy is to terminate the scheme as soon as possible.”

Inventories, shipping schedules, insurance premiums and vessel movements throughout the Gulf region will require weeks or even months to fully normalize.

“Even after the Strait reopens, it takes about 25 days (for oil ships) to travel from a Middle East country to Korea. so it will not translate into an immediate increase in supplies,” an industry official said.

Minister of Trade, Industry and Resources Kim Jung-kwan, left, and Saudi Arabia's Minister of Industry and Mineral Resources Bandar Al-Khorayef pose after a meeting in Saudi Arabia, June 14. Courtesy of Ministry of Trade, Industry and Resources

Maritime authorities are also maintaining their alert on Korean vessels and crew members remaining in and around the Strait of Hormuz.

According to the Ministry of Oceans and Fisheries, 137 Korean crew members were aboard vessels in the broader strait area as of Sunday, including 103 serving on Korean ships and 34 on foreign vessels. The number of Korean crew members aboard domestic vessels fell by two after scheduled crew disembarkations.

The ministry said a ninth crude carrier successfully passed through the Red Sea on Sunday and is currently transporting oil to Korea.

“The ministry supported the safety of our vessels and seafarers through 24-hour real-time monitoring, provision of navigational safety information, and operation of real-time communication channels among the ministry, shipping companies and vessels while the ship was navigating the Red Sea,” the ministry said.