Lee calls for overhaul of Korea's economic model amid Middle East crisis

President Lee Jae Myung speaks during a meeting with senior aides at Cheong Wa Dae in Seoul, Thursday. Yonhap

President Lee Jae Myung said Korea has reached a turning point that demands a fundamental overhaul of its economic model in response to the impacts of the Middle East conflict on the nation's economy.

He called for an all-out push to diversify energy sources and accelerate industrial transformation.

In a meeting of the National Economic Advisory Council at Cheong Wa Dae in Seoul, Thursday, the president repeatedly said Korea faces a major crisis. “Even though a ceasefire was announced, attacks continue. It’s hard to predict when the situation will be over,” he said.

“In the short term, the war in the Middle East is posing a considerable threat to our economy, and in the longer term, it seems now is the time for Korea’s economic system to change fundamentally.”

His remarks come amid growing calls for Korea to diversify its energy supply to reduce its reliance on the Middle East, as the war and the closure of the Strait of Hormuz seriously disrupted imports of oil and other petrochemicals.

Speaking to senior aides later in the day, Lee reiterated that the U.S.-Israel war on Iran would usher in “a completely different world,” while cautioning against premature optimism with the tentative ceasefire.

“However and whenever the war finishes, it will clearly usher in a world that is completely different from before … The government should not let its guard down and must move ahead with detailed, preemptive responses to every possible scenario,” he said.

Saying it is too early to be optimistic about the outcome of the ceasefire, he stressed that the government should continue to prepare for a wide range of contingencies stemming from the volatile situation, urging it to seek ways to build resilience into Korea’s economic system.

“We need to step up efforts to diversify our energy supply sources, shift toward a society centered on renewable energy and overhaul our industrial structure, while also speeding up the development of future growth engines such as next-generation small modular reactors, artificial intelligence and robots,” Lee said.

In the meantime, the government continues to monitor the situation in the Strait of Hormuz following contradictory reports from the U.S. and Iran about the reopening of the route despite the two sides’ ceasefire announcement the previous day.

Cargo ships in the Gulf, near the Strait of Hormuz, are seen from northern Ras al-Khaimah near the border with Oman's Musandam governance, amid the U.S.-Israeli conflict with Iran, in United Arab Emirates, March 11. Reuters-Yonhap

The Ministry of Trade, Industry and Resources said uncertainty surrounding the strait persists, though some vessels have passed through.

“(We are aware that) some ships are passing through the Strait of Hormuz, but we do not yet have an official grasp of the conditions for transit,” said Yang Ki-wook, director general of the ministry’s industrial resource security bureau.

He said it remains unknown if Iran will impose passage fees for the strait and how the international community will react.

“We have not even confirmed that (Iran) is demanding payment in cryptocurrency (or in Chinese yuan), and no such request has been made to us,” Yang said.

However, in the event that a transit toll is imposed, he suggested that the impact on prices would be akin to crude prices moving from around $90 to 100 per barrel to about $101.

He explained that this roughly 1 percent increase would translate to about a 0.5 percent rise in domestic gasoline prices, given that taxes account for about half of the pump price.

“You could assume that the impact would be around 0.5 percent plus a bit more, but still under a 1 percent increase overall,” he said.

The ministry also assured that despite the heightened uncertainty with ships transiting through the strait, medical item inventories, including syringes and IV packaging materials, remain at normal levels, and that key industrial materials, including helium, sulfuric and ethylene gas and construction, automotive and agricultural inputs are being closely monitored, with no major supply disruptions reported so far.

Meanwhile, the ministry announced a third round of price caps on gasoline, diesel and kerosene for the next two weeks, keeping them at previous levels to shield consumers from further increases.

The ministry explained that the decision took into account both the recent surge and subsequent plunge in international crude and refined product prices following the ceasefire announcement, as well as the need to avoid saddling diesel users such as truckers, delivery drivers, farmers and fishers with higher fuel bills while volatility remains elevated.