Strategic resilience for Korea’s supply chains

The war in the Middle East shows no signs of ending, prolonging instability in the supply and demand of energy and critical materials while driving further price increases. The closure of the Strait of Hormuz, one of the world’s most critical geopolitical and geo-economic chokepoints, and attacks on energy infrastructure are severely disrupting global production and supply chains.

Oil prices have spiked to over $100 per barrel, exerting severe pressure on the Korean economy — one of the most oil-dependent in the world. The crisis is already undermining business confidence and dampening investment activity. If oil prices remain around $100 per barrel for a year or longer, Korea’s growth is expected to decline by 0.3 percentage points, while inflation is projected to rise by 1.1 percentage points, according to the Hyundai Research Institute.

The closure of the Strait of Hormuz is also disrupting the helium supply from Qatar, which accounts for 33 percent of global production, undermining industrial activity in Korea and elsewhere. Helium is indispensable for semiconductor and wafer etching processes, irreplaceable in current production methods. It is also critical for medical applications such as cooling MRI superconducting magnets, and for space applications including purging rocket fuel tanks. Spot helium prices have surged by more than 40 percent compared to the previous week. Disruptions in the global supply of sulfur and fertilizers are also throttling manufacturing and agriculture.

In response to the consequences of the war in the Middle East, the Korean government is preparing a supplementary budget of 25 trillion won, which will be submitted to the National Assembly for approval by April 10. The budget is intended to alleviate fuel costs for small-business owners and farmers struggling with high oil prices, support export companies affected by the conflict in the Middle East, and aid youth workers at small and medium companies.

The war in the Middle East has exposed structural vulnerabilities across global supply chains, underscoring a lesson repeatedly learned but rarely prepared for: We are living in an era defined more by resilience than by efficiency. It has further highlighted the importance of stabilizing and diversifying global supply chains for rare earths and critical minerals.

Even Korea's strong manufacturing — which includes semiconductors, shipbuilding and defense production — is difficult to maintain without a reliable and resilient supply chain for rare earths and critical minerals. Gallium, germanium, silicon and palladium are essential for chip production. Nickel, manganese, molybdenum and niobium are vital for shipbuilding, while neodymium, dysprosium, tantalum and tungsten are critical for defense production.

However, Korea remains highly vulnerable to disruptions in global supply chains for rare earths and critical minerals due to its excessively high import dependence of nearly 95 percent. While it is steadily working to reduce its reliance on China from around 80 percent to 50 percent by 2030, the pace of diversification remains slow, constrained by the structural nature of critical mineral supply chains.

Japan’s experience offers a number of critical lessons. Following China’s rare earth export restrictions in 2010, Japan accelerated efforts to diversify supply sources including deep sea mining, invest in recycling technologies and build strategic reserves. Despite these measures, however, Japan’s self-sufficiency in rare earths and critical minerals remains limited, hovering around the 20 percent level. It underscores the immense difficulty of reducing dependence in this sector. The Japanese experience demonstrates that rare earth development requires long-term investment at scale, international partnerships and a willingness to bear environmental costs.

Resilience in critical mineral supply chains cannot be achieved quickly, but must be pursued persistently and strategically. Korea must therefore double down on its efforts to secure supply chain access and stability by diversifying sources, investing in technology development and building a strategic reserve to safeguard its manufacturing base against future shocks.

Coordinated efforts among like-minded countries are urgently required, as unilateral action by individual nations is insufficient to address the scale of the challenge. In parallel, advancing technological capabilities through sustained innovation offers a pathway to gaining a competitive edge and reducing dependence on specific suppliers. Recognizing that development and commercialization of rare earths and critical minerals demand long-term commitment, investment and cooperation must be pursued with patience and persistence. Companies, too, must acknowledge this reality and dedicate themselves to long-term strategies emphasizing resilience over efficiency. Ultimately, coordinated efforts between governments and industry are crucial to building resilient supply chains and securing strategic stability.

At the same time, securing and expanding the utilization of renewable energy sources has become imperative. Increased use of renewables not only enhances energy security but also reduces vulnerability to geopolitical shocks and supply chain disruptions. For Korea, accelerating investment in solar, wind and hydrogen technologies is essential to complement resilience strategies in critical minerals and to ensure long-term sustainability.

Song Kyung-jin is senior fellow at Asiatic Research Institute at Korea University.