South Korea’s petrochemical industry has been laid bare by the latest naphtha crunch, with experts pointing to a fragile supply chain now squeezed on multiple fronts. With imports of Russian naphtha already blocked and Middle Eastern supplies disrupted by war risks, the sector is facing what industry officials describe as a potential collapse in operations. While restarting Russian naphtha imports is cited as the most direct remedy, analysts say it is effectively impossible for South Korea, a U.S. ally, because it must comply with sanctions on Russia. The same constraint is expected to limit efforts to expand imports of “commercial tank” naphtha, which can be blended from multiple origins.
Industry officials said Tuesday that Korean petrochemical companies previously secured naphtha steadily from three main sources: Russia, the Middle East and other countries. In the 2010s, companies enjoyed a boom as supply prices were about 60% of today’s naphtha prices and demand for petrochemical products was strong in China and elsewhere, generating operating profits in the trillions of won for individual firms.
That picture changed in the 2020s as China brought large petrochemical complexes online, halted imports of Korean products, and the 2022 Russia-Ukraine war cut off Russian naphtha, a key supply source. Company performance deteriorated sharply, officials said.
To fill the gap left by Russia, Korean firms increased imports from the Middle East, a shift that made them more vulnerable to any disruption in the Strait of Hormuz, industry officials said.
China, meanwhile, imported large volumes of Russian naphtha after the Ukraine war, as export routes to South Korea and Japan narrowed, strengthening its petrochemical competitiveness and pressuring Korean companies, experts said. They added that access to Russian crude and naphtha helps explain why China can respond more flexibly to an Iran war and a Strait of Hormuz blockade.
The Financial Times reported that China has built competitive integrated refining and petrochemical complexes based on Russian crude and naphtha, while South Korea and Japan face overlapping pressures including higher raw material and electricity costs, shrinking domestic markets and weaker currencies.
As allied economies including South Korea, Japan and the European Union have come under strain, the U.S. government temporarily suspended sanctions on Russian crude and petrochemical products on March 12 local time, but it remains unclear whether the move will have meaningful impact. The measure allows transactions for Russian crude and petrochemical products already on ships through April 11, but industry officials said it is far from enough to cover the shortfall in Middle Eastern supplies.
“There is currently no way to import petrochemical products by evading sanctions on Russia, and there is a risk of even greater damage if sanctions are violated,” a petrochemical industry official said.
Those concerns are also fueling worries that the South Korean government and companies will struggle to import commercial-tank naphtha stored at ports around the world, because it is likely to contain some Russian-origin material, officials said.
After Russian naphtha imports were blocked in 2022, some Korean petrochemical companies increased purchases of commercial-tank naphtha stored in Tunisia. They later halted imports entirely after Bloomberg and other foreign media raised suspicions that the cargoes included Russian naphtha, according to industry officials.
Another industry official said Korean companies are believed to be importing commercial-tank naphtha from Singapore and Indonesia, where origin is relatively easier to verify. The official added that companies will also move aggressively to secure supplies to prevent a worst-case scenario in which ethylene production stops.
* This article has been translated by AI.
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