ED Prepare for long haul

A ship is seen in the Persian Gulf off the coast of Sharjah, United Arab Emirates, April 13, one day after the collapse of U.S.-Iran peace talks. AFP-Yonhap

In the U.S.-Israeli war on Iran, there is now a U.S. blockade on the Strait of Hormuz, a critical waterway that channels about 20 percent of the world's oil supplies. About 70 percent of Korea's oil and 20 percent of its natural gas come from the Middle East through this passage.

This strategic waterway is being held hostage, increasing the risk of energy prices soaring even higher, heavily affecting the global economy. Following the news that the U.S. is now enforcing its own blockade of Iranian ports, in addition to Iran's ongoing blockade of the strait, oil prices immediately went above $100 a barrel and some forecast that they could reach as high as $150.

"The impact of this shock is already baked in," International Monetary Fund (IMF) Director Kristalina Georgieva said in an interview with AFP. "Even if the war stops today, this five-plus weeks of missing supplies of oil and gas, they are already disturbing economies."

She also added that the IMF would downgrade its growth forecasts globally for the year.

The U.S. blockade went into effect at 11 p.m. Monday Korea time, after U.S. President Donald Trump declared on social media that the U.S. would stop all vessels entering or leaving Iranian ports and coastal areas via the Strait of Hormuz. U.S. Central Command later clarified that it would allow ships traveling between non-Iranian ports to transit the strait.

Mohammad Bagher Ghalibaf, the speaker of Iran's parliament and part of the country's negotiating team, responded that "if you fight, we will fight, if you come forward with logic, we will respond with logic."

It remains to be seen how the double blockade will unfold in terms of oil prices. Currently 26 Korean vessels carrying more than 170 Korean citizens are believed to be moored in the strait.

There is room for further negotiations. Trump has claimed that Iran badly wants to end the war. Few details have yet been released, but officials from the mediating nations of Pakistan, Oman and Turkey are urging both sides to return to talks. In this conflict, a resumption of negotiations is one of the best-case scenarios.

As an energy-dependent nation, Korea is one of the most affected economies in this conflict. Soaring energy prices are affecting just about every phase of Korea's manufacturing and the daily lives of Koreans. The shortage of naphtha is even hitting medical equipment supplies, while the helium used in semiconductor manufacturing is in short supply that it poses to dent the productivity of the top chip firms.

The Korean government must expand its contingency planning, recalibrating energy sourcing policies to prioritize energy security. The government must go as far as South American nations or Russia in its efforts to secure oil supplies, as it recently did in purchasing oil from Kazakhstan.

Since the most recent breakdown of talks, the government has said that it will continue with emergency plans to mandate an odd-even driving rotation system for government offices and public institutions. A five-day driving rotation system is in place at public parking lots. The same rules should apply to all gas-powered vehicles until the conflict ends.

The current government cap on oil prices at the pumps should be carefully considered. Drivers of delivery trucks and others who drive for a living surely benefit from the cap, but so do other private citizens. Incentivized by the price cap, oil sales were shown to have risen, with gasoline sales rising 24.7 percent and diesel 16.3 percent in the fourth week of March over the previous week. This behavior, while needing further assessment, runs counter to aims of the industry ministry in earmarking 4.2 trillion won to compensate refiners. Moreover, there is a risk that the move could distort markets and further strain the economy.

The nature of the Korean economy during this global energy crisis has added to worries about stagflation. French investment bank Natixis has sharply slashed Korea’s 2026 economic growth forecast to 1 percent from 1.8 percent. Policymakers must craft medium- to long-term economic plans calibrated to the risk factors.