"An unprecedented surge in oil prices is coming"…a 'chilling warning' emerges

Analysis by the Korea Institute for International Economic Policy

Even if the war ends quickly, international crude at $90

If it escalates, $174…"even this outlook is a conservative estimate"

"An oil-price spike on a historically unprecedented scale is expected."

The Korea Institute for International Economic Policy (KIEP), a government-funded think tank, projected that an escalation of a U.S.-Iran war would drive international oil prices to record-breaking gains. Even if it ends quickly, international crude is expected to reach $90 a barrel by the end of next year. That would keep prices 43% higher than before the war. In the worst case, it warned, prices could surge to as high as $174 by the end of next year. Observers said that would deliver a significant blow to Korea’s real economy, including inflation.

On the 2nd, KIEP released a report titled "Spillover Effects on Major Economies from the Oil Shock Triggered by a U.S.-Iran War." KIEP analyzed oil-price trajectories under three scenarios: ① early termination/ceasefire, ② prolonged conflict under a Strait of Hormuz blockade, and ③ strikes on energy facilities and escalation.

As of Q4 2027, it estimated $90 a barrel in the early-termination scenario, $117 under a prolonged blockade, and $174 if energy facilities are hit. In all three scenarios, international crude was not expected to return to the prewar level of $63 a barrel.

Even if the war ends quickly, restoring energy facilities would take considerable time. If the blockade drags on, global crude production could fall by 10%. It also assessed that if the U.S. continues strikes on Iran’s energy facilities and escalation, oil prices could climb to historic highs. KIEP warned that "an oil-price spike on a historically unprecedented scale is expected," adding that "given that this outlook represents a lower-bound estimate, the actual shock could be even larger."

KIEP advised that Korea, which has high dependence on Middle Eastern energy and is therefore directly exposed to the threat, should urgently prepare preemptive supply diversification and emergency supply-and-demand measures.

KIEP added, "The Middle East accounts for about 34.4% of Korea’s naphtha imports, and if facilities in Qatar are struck it could take 3–5 years just to restore them, underscoring the need to strengthen energy security over the medium to long term," and "Given that the current situation is close to the level of a prolonged blockade, there is a high degree of urgency for policy responses." It also noted, "In analysis of past cases, Korea’s inflation rate rose by 0.12% points immediately after a news shock related to disruptions in oil supply," and pointed out that "we must closely examine the transmission channel through which higher energy import prices pass through producer prices to consumer prices."

Reporter Kim Ik-hwan lovepen@hankyung.com