As the military conflict between Israel and Iran enters its second week following an initial surprise attack, concerns are rising that a prolonged confrontation could negatively impact South Korea’s exports to the Middle East.
According to a recent report titled “Export Business Status in Major Middle Eastern Countries Following the Israel-Iran Situation,” published by the Korea Trade-Investment Promotion Agency (KOTRA), the crisis is escalating global economic uncertainty.
The report notes that fears of disruptions to oil supplies from the Middle East have already caused freight rates for very large crude carriers (VLCCs) to surge by over 20%, and there is a possibility that oil prices could exceed USD 100 per barrel.
While the report suggests that potential increases in production by OPEC+ members, releases from the U.S.
Strategic Petroleum Reserve, and economic slowdowns in Europe and China could partially buffer oil price hikes in the long term, it emphasizes the need for continued monitoring.
Logistically, the closure of airspace over Iran, Israel, and Iraq has led to flight cancellations. Although major ports are currently operating normally, increased geopolitical risk is causing congestion as more vessels opt for alternative routes.
The report warns that a long-term impact on trade and logistics, including for South Korea, would be significant if the Strait of Hormuz shipping lane were to be closed.
The Strait of Hormuz is a critical chokepoint, through which 35% of the world’s seaborne oil and 33% of liquefied natural gas (LNG) pass. For South Korea, 99% of its crude oil imports from the Middle East transit this strait.
KOTRA’s report highlights that while there has been no direct attack or closure of the Strait of Hormuz yet, safety concerns are growing.
An incident on June 18 (local time) involving the collision of two oil tankers in the strait, suspected to be caused by GPS jamming, indicates the emerging impact, with major shipping companies already adjusting their routes.
This has resulted in logistics delays and increased cargo volume and congestion at some ports in Saudi Arabia and the UAE.
The report forecasts that a closure of the Strait of Hormuz would likely cause oil prices to skyrocket. However, it deems a complete closure unlikely in practice due to the presence of the U.S. fleet.
Nevertheless, the report anticipates that if risks such as Iranian attacks on tankers or mine laying in the strait persist, forcing vessels to reroute and causing delays, a rise in maritime freight rates will be unavoidable.
KOTRA expresses concern that a prolonged conflict could also directly impact South Korea’s exports to the Middle East.
Exports to Israel, Iran, Jordan, Lebanon, Syria, and neighboring countries had seen significant growth through May of this year, increasing by anywhere from 10% to 140 times compared to the same period last year. The report suggests the current situation could negatively affect this recovery trend.
While the report notes that the export share to these specific countries is not large enough to significantly impact South Korea’s total exports, it anticipates an increase in indirect exports through neighboring countries like the UAE and a rise in demand for relief supplies.
Furthermore, the report raises concerns about potential delays or cancellations of large projects in neighboring countries like the UAE and Saudi Arabia. These risks stem from increased costs due to potential damage to energy facilities and higher defense spending by these nations.
KOTRA stated that it activated an emergency response task force immediately after the incident began to monitor energy and export logistics.
The agency plans to maintain a close coordination system with its overseas trade offices to continue supporting Korean companies’ exports and local operations in the region.
