Middle East conflict raises alarm on Korea's oil dependence

Automobiles await to fuel up at a gas station in Seoul, Sunday. Yonhap

The U.S.-Israel attack on Iran and Tehran’s retaliatory strikes across the Middle East have turned the Strait of Hormuz into a critical flash point, reigniting concerns over Korea’s heavy dependence on energy imports from the region.

With the strategic waterway accounting for roughly 27 percent of global seaborne oil trade, fears are mounting that any disruption could jolt energy markets and threaten supply stability.

In the aftermath of the attack, the government said Tuesday it will seek to secure oil supplies from outside the Middle East in response to a possible closure of the Strait of Hormuz, while emphasizing that Korea currently holds sufficient oil reserves.

While the U.S. military Central Command denies the strait has been closed, Iran’s Revolutionary Guard has been escalating their threats against shipments, saying they “will set those ships ablaze,” raising the specter of a prolonged disruption to one of the world’s most vital oil export routes.

Any closure would directly disrupt crude oil and liquefied natural gas (LNG) shipments from the Persian Gulf. Korea relies almost entirely on imports for its fossil fuel needs, with about 70 percent of its crude oil sourced from the Middle East. Saudi Arabia accounts for the largest share at 33.6 percent, followed by the United Arab Emirates at 11.4 percent, Iraq at 10.4 percent and Kuwait at 8.5 percent.

Up to 30 percent of Korea’s natural gas imports also come from the region, including Oman and Qatar, underscoring the country’s high exposure to potential supply disruptions in the Gulf.

Experts say the impact for Korea will go far beyond higher import bills for oil and gas.

“It’s not just crude imports that are at risk, but logistics and transport for both exports and imports are also disrupted (in the long term),” said Kang Sung-jin, economics professor at Korea University, noting that the Trump administration has hinted the military operations would last at least four to five weeks.

“Because oil is typically imported under advance contracts, there is usually a lag of about three to five months before spot price changes show up in Korea’s import costs. In the meantime, even before the real sector impact is felt, heightened uncertainty tends to weigh on investment and is quickly reflected in stock prices and especially the exchange rate.”

Jang Sang-sik, head of trade trend analysis at the Korea International Trade Association, also said, “If the situation drags on, higher costs will be almost unavoidable, as war risk surcharges, insurance premiums and shipping expenses are all likely to rise.”

The Ministry of Trade, Industry and Resources said the immediate impact of the latest tensions has been limited, noting that the country maintains strategic reserves equivalent to approximately 208 days of crude oil demand and 52 days of LNG demand, with inventories exceeding mandatory stockpiling requirements.

Vice Minister Moon Shin-hak said that Korea currently has 157 million barrels of crude oil immediately available, comprising 76.48 million barrels in government reserves and 73.83 million barrels held by the private sector. An additional 35 million barrels can be secured within three months, bringing the total reserves to an amount equivalent to 208 days of supply.

"In addition, we can secure a further 35 million barrels within the next three months," he said during a press briefing on Tuesday at Government Complex Seoul in Jongno District, Seoul.

However, despite Korea’s ability to manage a short‑term shock, Kang cautions that a prolonged disruption could echo the oil shocks of the 1970s, when surging prices fed into the entire cost structures of industries and pushed up prices of virtually all manufactured goods.

“Our key industries are mostly tied to the United States or Europe, so you have to assume that virtually all of Korea’s main industries will be affected,” he said.

He noted that in the long-term perspective, policy responses should include simply releasing reserves as well as diversifying oil import sources.

“As long as we don’t reduce our dependence on crude oil, there is effectively no real solution. Cutting reliance on fossil fuels has to be a very long-term project. In the short run, Venezuelan oil is often mentioned, but its quality is too low for Korea to use in any meaningful way, so we inevitably remain heavily dependent on Middle Eastern crude, with the U.S. as a limited alternative,” he said.

“We need to both diversify import sources and steadily reduce our fossil fuel dependence through renewables ... to be pursued as a long-term plan on both fronts.”

Amid growing concerns over crude oil supplies, the Ministry of Economy and Finance said Tuesday that the government will work to secure additional oil from regions other than the Middle East in preparation for a potential blockade of the Strait of Hormuz.