Kuwait Declares Force Majeure on Crude Exports; South Korea Sees Limited Impact

Source

Korea Economic Daily

Summary

Kuwait declared force majeure on crude exports, but the South Korean government said there would be no domestic impact because imports of Kuwaiti crude had already stopped after the Strait of Hormuz closure.
South Korea's refining industry is securing replacement cargoes through import diversification, but a prolonged strait closure could heighten supply uncertainty because of the country's heavy dependence on the Middle East.
Volatility in international oil prices is increasing because of Middle East tensions and supply concerns, pushing domestic gasoline and diesel prices toward 2,000 won per liter.

Forecast Trend Report by Period

"Short-term impact from Kuwait export halt limited"

"Prolonged Strait of Hormuz closure would make supply shortages unavoidable"

Kuwait, a major Middle Eastern oil producer, has declared force majeure on crude exports. Concerns over tighter supply are mounting, but the South Korean government and domestic refiners say the immediate impact will be minimal because imports of Kuwaiti crude had already been halted after the Strait of Hormuz was closed.

Bloomberg and other media outlets reported on April 22 that Kuwait Petroleum Corp. invoked force majeure clauses in contracts in a letter sent to counterparties on April 16. The company said the closure of the Strait of Hormuz had made it difficult to ship contracted volumes on time.

Kuwait ranked fifth among South Korea's crude suppliers last year, according to the Korea International Trade Association. It accounted for 8.7% of total crude imports, behind Saudi Arabia, the US, Iraq and the United Arab Emirates.

Yang Ki-wook, head of industrial resource security at the Ministry of Trade, Industry and Energy, said the declaration would have no effect on South Korea because Kuwaiti crude had already stopped arriving after the Strait of Hormuz was shut following the Middle East war.

Kuwait is located deep inside the Persian Gulf. Unlike Saudi Arabia and the UAE, which can reroute some exports through inland pipelines without passing through the Strait of Hormuz, Kuwait has no alternative route.

South Korea's refining industry has been securing replacement cargoes by diversifying import sources in anticipation of the risk. Still, its ability to respond remains limited because of the country's heavy dependence on Middle Eastern supplies.

Four of South Korea's top five crude suppliers are in the Middle East, with the US the only exception. If the strait closure is prolonged, supply uncertainty could intensify. Such disruption could also add further pressure to international oil prices.

International oil prices have become more volatile as tensions in the Middle East combine with supply concerns. The impact is also filtering through to domestic fuel costs. The nationwide average gasoline price at gas stations rose above 2,000 won ($1.40) a liter on April 17. Diesel prices are also approaching 2,000 won a liter.

Park Su-bin, Hankyung.com reporter, waterbean@hankyung.com