The escalating tensions in the Middle East are rapidly evolving from a military conflict into a broader economic war, sending ripples of anxiety through industries worldwide. Following reports of an Israeli attack on an Iranian gas field on March 18th and subsequent retaliatory strikes by Iran targeting energy facilities in neighboring countries, the global energy supply chain faces a prolonged period of disruption. A complete closure of the Strait of Hormuz, a critical artery for global oil transport, could increase South Korean manufacturing costs by more than 5 percent, according to recent analysis.
Since the reported commencement of military action by the United States and Israel against Iran on February 28th, South Korean industries have been focused on mitigating the impact of soaring oil prices. The focus is now shifting to a more immediate concern: potential supply shortages. The refining and petrochemical industries are particularly vulnerable, scrambling to secure alternative supply routes. Current government and private stockpiles total approximately 190 million barrels, enough to last roughly 200 days based on the International Energy Agency’s (IEA) calculations of average daily net imports. However, when calculated against South Korea’s actual daily oil consumption of 2.8 million barrels, that reserve dwindles to approximately 68 days.
The Petrochemical Sector Faces Imminent Risk
The situation is particularly acute for the petrochemical industry. Current naphtha (a key feedstock) inventories are estimated to cover only two to three weeks of production, raising concerns that naphtha crackers could begin to shut down within a month. Naphtha, derived from crude oil, is an essential building block for the petrochemical industry, used to produce ethylene – often referred to as the “rice of the industry” due to its role in the production of plastics, synthetic fibers, rubber, and a wide range of chemical products.
“While crude oil is managed as a strategic material by the government from an energy perspective, naphtha is managed at the individual company level, leaving a lack of comprehensive countermeasures,” explained a source within the petrochemical industry. “As naphtha costs and shipping expenses rapidly increase, factory shutdowns will grow inevitable within a month.” Such shutdowns would have cascading effects across manufacturing sectors, including automotive, electronics, construction materials, and tire production. The food and beverage industry could also be affected, as polyethylene – a key component in packaging materials – becomes harder to source.
Rising Oil Prices and Shipping Costs Amplify Concerns
Adding to the pressure, the escalation of conflict has driven up international oil prices. Brent crude, the global benchmark, surpassed $111 per barrel during trading on March 19th, reaching a 52-week high. This surge is directly impacting logistics and export costs. The Shanghai Container Freight Index (SCFI), a key indicator of container shipping rates, reached 1710.35 on March 13th – its highest level in eight months. A logistics industry source reported that shipping costs to the Middle East have tripled since the start of the conflict. The aviation industry, where fuel accounts for 30 percent of operating costs, is also facing significant headwinds, with T’way Air already entering emergency management mode in response to the crisis.
Long-Term Disruption Looms
The most significant concern is the potential for prolonged instability in the region. A report released on March 19th by the Korea Institute for Industrial Economics & Trade (KIET) analyzed potential supply chain scenarios. The report estimates that a closure of the Strait of Hormuz – through which 27 percent of global oil and 22 percent of natural gas transit – lasting one to three months would drive oil prices to $120-$160 per barrel and natural gas prices up by 100-140 percent. A closure exceeding three months could push international oil prices to $150-$180 per barrel, with liquefied natural gas prices increasing by an additional 150-200 percent.
The KIET report further detailed the impact on South Korean production costs. Even if the Strait of Hormuz were to reopen within three weeks, the analysis projects a 4.2 percent increase in average production costs across all industries, a 5.4 percent rise in manufacturing, and a 1.4 percent increase in the service sector. A closure lasting three months or longer could lead to a 9.4 percent increase in overall industrial costs, an 11.8 percent increase in manufacturing, and a 3.1 percent increase in the service sector.
The situation remains fluid, and the potential for escalation is high. The South Korean government is closely monitoring developments and working with international partners to ensure energy security. Further updates will be provided as the situation evolves.
If you are feeling anxious or stressed about global events, resources are available to help. You can reach out to the Crisis Text Line by texting HOME to 741741, or call the National Alliance on Mental Illness (NAMI) helpline at 1-800-950-NAMI (6264).
Share your thoughts on this developing situation in the comments below.
