Ongoing Israel-Iran Conflict for Three Days... Growing Concerns Over Middle East Energy Imports

South Korea's crude oil import share from the Middle East: 72%·LNG: 36%

If the Strait of Hormuz is blocked, crude oil and LNG import routes are cut off

Rising oil and gas prices could pressure public utility rate hikes

As the clash between Israel and Iran continues for the third day, a warning sign is flashing for South Korea's energy supply. This is because the likelihood of Iran blockading the Strait of Hormuz in response to Israel's attacks is increasing. Some observers predict that South Korea, which relies heavily on the Middle East for crude oil and liquefied natural gas (LNG), could see its entire economy and industry impacted.

According to foreign media on the 15th, Israel has expanded its airstrikes to target key Iranian energy facilities. Iran is also continuing attacks targeting major Israeli cities. The semi-official Fars News Agency reported that a major fire broke out at the refining facility in Block 14 of the South Pars gas field in the southern Gulf region of Iran due to Israel's attacks.

There are warnings that if the conflict between the two countries escalates into a full-scale war, South Korea’s economy, which is absolutely dependent on Middle Eastern energy imports, will inevitably be hit. Data from the Korea National Oil Corporation’s ‘2023 Domestic Oil Market’ show that, by continent, the Middle East accounted for the largest share of Korea’s crude oil imports at 71.9%, followed by America (19.1%) and Asia (6.9%). Most of the main importers, such as Saudi Arabia (32.6%·No. 1), United Arab Emirates (UAE·10.9%·No. 3), Kuwait (9.6%·No. 4), and Iraq (9.0%·No. 5), were Middle Eastern countries.

This increased dependence on the Middle East stems from the Russia-Ukraine war. After Korea reduced imports of Russian crude oil in 2021, its reliance on the Middle East rose again. The proportion of Middle Eastern oil, which stood at 69% in 2020, dropped to 59.8% in 2021 but climbed to 71.9% by 2023.

As of last year, LNG ranked 2nd in Korea’s energy mix (24.1%) after oil (34.7%), and over a third of LNG imports were from the Middle East. According to Korea Customs Service trade statistics, last year, Middle Eastern countries Qatar (24%) and Oman (12%) combined accounted for 36% of Korea’s LNG imports. The top LNG importers were Australia (26%), followed by Qatar (24%), Oman (12%), Malaysia (12%), and the United States (11%).

The issue is that most Middle Eastern crude oil and LNG pass through the Strait of Hormuz. The Strait, connecting the Persian Gulf and the Arabian Sea, sees about 20 million barrels of crude oil and petroleum products pass through daily. It is considered the world’s most crucial oil transport route, carrying nearly one-fifth of global oil shipments.

Within the energy industry, concerns are mounting that Iran might blockade the Strait of Hormuz or attack oil tankers passing through it. In fact, when the U.S. withdrew from the Iran nuclear agreement (JCPOA) and resumed sanctions in 2018, Iran had previously warned of closing off the Strait.

If such a worst-case scenario becomes reality, experts forecast that not only South Korea, but also the global market, could experience an ‘oil shock’-level impact. As South Korea imports 100% of its energy, including gasoline and gas, there may be upward pressure on prices across all public utilities such as electricity and gas.

Matt Maley, chief market strategist at Miller Tabak, remarked on the 13th, "What happens at the Strait of Hormuz is key. Iran has the ability to blockade it and cut off 13 million barrels a day of oil and natural gas," warning, "If the situation drags on and the Strait is affected, oil prices could exceed $100 per barrel."

However, some analyses indicate that a blockade of the Strait of Hormuz would be a ‘last resort’ for Iran as well.

Reporter Park Subin, Hankyung.com waterbean@hankyung.com