The domestic oil and petrochemical industries are on high alert due to the renewed conflict between the U.S. and Iran, which has led to blockades in the Hormuz Strait, along with the increasing possibility of attacks by Houthi rebels in the Red Sea.
Thanks to proactive measures by the government and companies securing supplies for September, there are currently no immediate disruptions in crude oil supply. However, if the blockades in both straits persist, rising transportation costs, insurance premiums, and raw material expenses will inevitably lead to decreased profitability.
According to industry sources, domestic refiners have already completed shipments of crude oil needed for August and are in the process of transporting it to South Korea. Supplies for September have also been confirmed from various countries, including those in the Middle East.
The greater concern lies in the potential cost burdens if the blockades in the Hormuz Strait and the Red Sea become a reality. With international oil prices, maritime freight rates, and war risk insurance premiums all rising simultaneously, the cost of procuring crude oil is expected to increase.
The Hormuz Strait and the Red Sea are critical maritime routes for transporting Middle Eastern crude oil to major consumer markets in Asia and Europe. The industry anticipates that if disruptions occur in both routes, the logistical burdens for crude oil procurement and petroleum product exports will significantly escalate.
Another challenge is the difficulty in immediately passing increased costs onto product prices. Under the government's price stabilization policy, there is pressure to avoid raising retail prices at gas stations, and intense competition among refiners makes it challenging to fully transfer cost increases.
The petrochemical sector is also feeling the strain. The instability in supply leading to higher crude oil prices is driving up naphtha prices, increasing raw material costs. With the ethylene spread already below the breakeven point, further increases in raw material and logistics costs could necessitate a reduction in the operating rates of naphtha cracking centers (NCC) or adjustments in the production of certain petrochemical products.
Cost pressures are already being reflected in the market. Following a ceasefire between the U.S. and Iran, international oil prices, which had dropped to between $60 and $70 per barrel, have now risen above $90.
The price of Dubai crude, a key benchmark for South Korea's oil imports, also rose by $1.42 to $75.19 per barrel compared to the previous day. Consequently, prices for naphtha, a core raw material for petrochemicals, are on the rise, with key feedstock prices such as butadiene (BD), benzene, and ethylene increasing by over 10% in the past week, further heightening cost pressures.
One industry official stated, "Since the conflict between the U.S. and Iran, we have diversified our crude oil purchasing sources beyond the Middle East, but it is difficult to completely avoid Middle Eastern risks. If the instability in the Hormuz Strait and the Red Sea persists simultaneously, the rising costs of freight and insurance, along with challenges in securing vessels, could significantly increase the overall burden of crude oil procurement costs."
* This article has been translated by AI.
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