South Korea's Oil Imports Drop 15%, Costs Surge 21% Amid Red Sea Tensions

South Korea's oil imports have decreased over the past four months since the outbreak of war in the Middle East, while the amount paid for these imports has surged by more than 20%. With rising tensions in the Red Sea, concerns are growing that oil prices and logistics costs will increase further.

According to Yonhap News on July 25, South Korea's oil import value (based on MTI 1310) from March to June reached $30.23 billion, a 21.1% increase from $24.97 billion during the same period last year. In contrast, the volume of oil imports fell from 45.1 million tons to 38.5 million tons, a decrease of 14.7%. This means that despite importing significantly less oil, the country is paying a much higher price.

This situation is attributed to temporary disruptions in the supply of Middle Eastern oil due to the blockade of the Strait of Hormuz, which has caused international oil prices to spike.

However, the government and industry have diversified their import sources, leading to a gradual recovery in import volumes. After importing 8.46 million tons in April, the volume increased to 9.7 million tons in May and 9.88 million tons in June. The Ministry of Trade, Industry and Energy stated that it has secured more than 110% of the average oil volume for July and August compared to last year, and over 90% for September, indicating no immediate supply issues.

Nevertheless, with tensions now extending from the Strait of Hormuz to the Red Sea, supply chain uncertainties are rising again. According to the Korea National Oil Corporation's Petronet, Brent crude prices reached $100.69 per barrel on July 23, surpassing the $100 mark for the first time in two months.

If passage through the Red Sea, which has been used as an alternative route to the Strait of Hormuz, becomes restricted, other alternative routes such as the Suez Canal will need to be sought. This could extend transportation times by about 30 days and significantly increase shipping costs. The Ministry of Industry has noted that no domestic refiners have confirmed plans to reroute through the Suez Canal, although some are reportedly considering it.

If international oil prices and import costs continue to rise, it could lead to increased production and logistics costs, impacting the entire domestic industry. Previously, the Korea Institute for Industrial Economics and Trade estimated that production costs across all industries rose by 3.73% due to the spike in oil prices during the blockade of the Strait of Hormuz.

Bing Hyun-ji, a researcher at the Korea Institute for Industrial Economics and Trade, stated, "If the blockade remains effective, oil prices could rise to between $120 and $130, with a maximum of $150. Additionally, rerouting through the Suez Canal will significantly increase costs, including war risk insurance and shipping rates from Africa."

She added, "Even if alternative routes are utilized, there is a high possibility of supply shortages if the situation prolongs. The government should continue efforts to secure alternative supplies while expanding monitoring of oil prices, transportation, and insurance costs."