The war sparked by a surprise U.S.-Israeli airstrike on Iran has stretched beyond two months, raising the risk that pent-up energy costs will hit all at once in what industry officials describe as a “lagged shock.” With companies already grappling with supply-chain instability and broader uncertainty, the delayed impact could become a major new burden.
Industry officials said Tuesday that the monthly average price of Dubai crude, a key benchmark tracked by the Bank of Korea, rose from $61.97 in January to $128.52 in March after the war began Feb. 28, more than doubling. As of early May, it has been hovering in the $104 range.
Much of the petroleum products now being sold comes from low-priced inventories imported 2 to 4 months ago at an average in the mid-$60s per barrel. Electricity rates also have not fully reflected the oil surge because of a cap in the fuel-cost adjustment mechanism. Since Dubai crude typically feeds into South Korea’s system marginal price for power after a 4- to 5-month lag, the March spike is expected to affect electricity bills directly or indirectly in July and August, when cooling demand peaks.
According to an analysis by the Korea Institute for Industrial Economics and Trade, a 10% rise in oil prices increases average manufacturing production costs by 0.71%. The biggest hits fall on petroleum products (6.30%), chemical products (1.59%) and rubber and plastics (0.46%). With Dubai crude up 87.9% in March alone, the real-world impact could be larger than the headline figures, the institute said.
The path to relief remains unclear. With U.S.-Iran talks on ending the war making little progress, the United States has moved to block all vessels traveling to and from Iran in what the article described as a “reverse blockade.” Even if the Strait of Hormuz reopens depending on the outcome of negotiations, it would take six weeks just to restore 80% of Gulf oil-field output to normal levels. Factoring in additional lags from shipping, refining and inventory drawdowns, elevated energy costs are likely to persist through the third quarter.
Major global investment banks have also raised alarms. Citigroup said Brent crude could top $150 a barrel if supply disruptions continue through June. With Dubai crude already well above $84, the break-even level for refiners, South Korean refiners are expected to enter a loss-making phase starting about two months from now as low-priced inventories are depleted. Experts warned that the current surface-level price stability could amplify the shock later.
Kim Kwang-seok, head of economic research at the Korea Economy and Industry Research Institute, said that while energy prices typically rise first at the start of a war, increases later spread to naphtha, ethylene, fertilizer and urea, as well as consumer goods such as food and service costs. If the Middle East war does not end within this month and becomes prolonged, inflation is likely to shift from a concern to a reality, he said.
* This article has been translated by AI.
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