The joint U.S.-Israeli airstrikes on Iran, launched on Feb. 28, killed Supreme Leader Ayatollah Ali Khamenei and triggered retaliatory Iranian missile and drone strikes against U.S. military assets across the Gulf and multiple Arab states. As of Tuesday, fighting had entered a third day with no ceasefire in sight, and U.S. President Donald Trump outlined a four- to five-week timetable for the campaign.
Brent crude surged more than 6 percent in Monday trading, briefly approaching $80 a barrel, while European gas prices spiked nearly 40 percent after Qatar halted LNG output at a major facility following intercepted drone threats.
Analysts warn that a sustained disruption to Hormuz traffic could push oil above $100 a barrel. The strait carries about 20 percent of the world's crude oil and one-fifth of global LNG.
South Korea's exposure is acute as the country imports 70.7 percent of its crude oil and 20.4 percent of its LNG from the Middle East, according to the Korea International Trade Association.
Should detour routes become necessary, maritime freight rates could climb 50 to 80 percent, with insurance premiums surging as much as sevenfold akin to the levels of past Gulf crises.
The Organization of the Petroleum Exporting Countries said Sunday it would raise output by 206,000 barrels per day in April, but that increase amounts to only a fraction of the roughly 15 million to 20 million barrels per day that normally transit the strait.
"Predictions of a prolonged war are not widespread, given Iran's missile-launch capacity and other constraints," said Yoon Jae-sung, an analyst at Hana Securities. "The possibility of a short-term disruption to South Korea's crude oil procurement is limited."
Yoon cautioned, however, that a full Hormuz blockade would have far more severe consequences than the energy shock triggered by the Russia-Ukraine war.
"Massive supply disruptions would be inevitable not only for crude oil, petroleum products, gas and fertilizer, but also for petrochemicals, and short-term price spikes would follow," Yoon said, pointing to S-Oil, SK Innovation, Unid and Lotte Fine Chemical as companies relatively better positioned to weather volatility.
Petrochemicals hit at worst possible timing
The conflict arrives at one of the worst possible moments for South Korea's petrochemical industry, the world's fourth-largest producer of ethylene and propylene.
The sector has been mired in losses since 2021, battered by Chinese overcapacity and chronically weak margins. Spot cash margins for naphtha-fed steam crackers in Northeast Asia stood at minus $293 per metric ton as of mid-February, according to Chemical Market Analytics by OPIS.
South Korea is one of the world's largest importers of naphtha, the crude oil derivative that serves as the primary feedstock for its petrochemical complexes. About 80 percent of ethylene's selling price is tied to naphtha procurement costs. When oil rises, naphtha follows — but producers cannot pass on higher costs in a global market flooded with Chinese supply.
On Feb. 25, the Ministry of Trade, Industry and Energy signed off on the "Daesan No. 1" plan, merging Lotte Chemical and HD Hyundai Chemical operations with a 2.1 trillion won ($1.43 billion) support package.
Lotte Chemical's 1.1-million-metric-ton-per-year ethylene cracker will be shut over three years. The deal marks the first consolidation under a broader roadmap targeting a national reduction of up to 3.7 million metric tons of cracking capacity across the Daesan, Yeosu and Ulsan complexes.
The restructuring was designed for a low-price, oversupply environment — a sudden crude spike upends those calculations entirely.
Freight shock amplifies cost pressure
Fuel volatility has already triggered sharp spikes in charter rates for very large crude carriers (VLCCs).
Following the U.S.-Israeli strikes, VLCC charter costs surpassed $400,000 per day. Rates that had hovered in the low $200,000 range nearly doubled within days as Iran escalated threats to Hormuz. Projections suggest that if a blockade materializes, charter fees could climb as high as $800,000 per day.
That represents more than a twofold increase from Feb. 27 — just before the conflict erupted — when the index stood at 224.72 and TCE at $218,154. Compared with January levels, when TCE averaged $78,793, tanker freight costs have surged more than fivefold in roughly a month.
Defense emerges as the clear industrial upside
The sole industrial upside from widening armed conflict lies in defense.
Korea's defense exports to the Middle East tripled from $241 million in 2019 to $747.5 million in 2024, according to the Export-Import Bank of Korea. The broader Middle East and North Africa region accounted for 27 percent of global arms imports between 2020 and 2024, with regional defense spending projected to reach $255.8 billion by 2029.
"Even if the war ends early, weapons imports in the Middle East could increase over the mid- to long term as countries hedge against follow-up Iranian attacks and lingering uncertainty," said Chae Woon-sam, an analyst at Hana Securities.
"Not only U.S. defense firms, but Korean defense companies are also expected to benefit from rising regional demand."
The conflict has exposed Gulf states' vulnerability to missile and drone strikes, with attacks hitting airports, military bases and residential areas across Qatar, Jordan, Kuwait and Bahrain. That exposure is likely to accelerate demand for the air defense and missile interception systems South Korean firms have been actively marketing.
Hanwha Aerospace signed a $3.2 billion Cheongung-II air defense contract with Saudi Arabia in November 2023 and a $3.5 billion missile system deal with the UAE in January 2022. On Feb. 8, Defense Minister Ahn Gyu-back traveled to Riyadh for talks during the World Defense Show 2026, where 40 Korean firms showcased hardware and the two countries signed a new memorandum of understanding on joint defense research and development.
Hana Securities said the recent wave of missile strikes has heightened the urgency of regional air defense stockpile replenishment, placing LIG Nex1 in a strong position. The Cheongung-II, often referred to as "Korea's Patriot," could emerge as a competitive mid-tier alternative to the U.S.-made Patriot system, which faces supply constraints and carries a higher price tag.
Experts at the Washington Institute have noted that South Korean defense systems appeal to Middle Eastern buyers seeking to counter Iran's expanding drone and missile capabilities while diversifying beyond sole dependence on U.S. suppliers.
Korean systems are designed to integrate with U.S.-supplied command-and-control networks, offering Gulf states redundancy without undermining existing alliance structures.
The near-term outlook remains complicated.
Iranian strikes on Gulf infrastructure have forced Korean firms to scale back on-the-ground operations. Hanwha, which employs about 123 workers at its Bismayah New City construction project in Iraq, activated emergency safety protocols.
Korean Air suspended its Incheon–Dubai route, while shipping companies HMM and Pan Ocean prepared contingency detour plans.
Any prolonged closure of Gulf airspace and sea lanes would delay deliveries, joint ventures and research cooperation — even as strategic demand for Korean defense systems grows.
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