Tensions surrounding the South Korean economy are escalating as hostilities intensify between the United States, Israel, and Iran. While the semiconductor industry has supported the economy on the back of explosive artificial intelligence demand, heightened geopolitical instability in the Middle East could trigger warning signs across multiple sectors. Domestic companies sensitive to oil prices and electricity costs are closely monitoring developments while reviewing contingency plans.
The government has initiated emergency response measures for worst-case scenarios. A government official said on the 2nd, "We are adjusting tanker schedules and reviewing alternative supply sources, assuming the worst case of a complete blockade of the Strait of Hormuz." The government and private companies have stockpiled approximately seven months' worth of crude oil and LNG exceeding mandatory reserves. The Ministry of Trade, Industry and Energy is prepared to release supplies to the market at its own discretion if necessary. An emergency response system has also been established. Lee Hyung-il, Second Vice Minister of the Ministry of Economy and Finance, said, "We have decided to activate a joint emergency response team of relevant agencies regarding the Iran situation." The response team comprises an international energy division, economic situation and supply chain division, and financial markets division.
The concern is that the situation shows signs of prolonging, with Iran conducting retaliatory strikes on U.S. military facilities in the Persian Gulf region. In this case, oil prices could exceed $100 per barrel, likely stimulating both export costs and consumer prices.
There are also concerns that China, the largest buyer of Iranian crude, could fuel energy price instability. If China enters the market to secure alternative supplies to replace Iranian oil, the supply-demand balance could be disrupted.
South Korea is particularly vulnerable to geopolitical crises in the Strait of Hormuz, as it depends on five countries bordering the Persian Gulf—Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, and Qatar—for nearly 70% of its crude oil supply as of last year. While Saudi Arabia and the UAE export some of their production via the Red Sea and Indian Ocean, most shipments to Korea must pass through the Strait of Hormuz.
If oil prices rise in earnest, consumer prices are likely to follow. Petroleum and heating costs account for nearly 6% of the Consumer Price Index weighting, and rising oil prices increase overall production costs. According to the Korea International Trade Association, every 10% increase in international oil prices raises export and import unit prices by 2.09% and 3.15%, respectively. LNG prices, in particular, would push up average power generation costs, increasing pressure for electricity rate hikes.
Domestic industries are also on high alert regarding developments in the Middle East. The semiconductor industry assesses immediate impact as limited due to the absence of direct production facilities or material supply chains in the region, but is strengthening monitoring against potential contraction in global IT demand.
Samsung Electronics has evacuated employees working in Iran and Israel to nearby countries including Dubai in the UAE, Egypt, and Jordan. Staff in the UAE, Qatar, and Iraq have shifted to remote work, while operations in Saudi Arabia and Jordan continue normally.
The shipping industry's focus is on the Strait of Hormuz. Tensions escalated further after civilian vessels were repeatedly struck near the strait following the Iranian Revolutionary Guard Corps' blockade declaration, resulting in casualties. As major Greek, German, and Japanese shipping companies abruptly suspended operations in the area, the Korea Shipowners' Association on the 2nd sent a notice to member companies urging crew protection, verification of war insurance terms, and information sharing with the Cheonghae Unit and the Ministry of Oceans and Fisheries.
Even without a blockade of the Strait of Hormuz, companies face various cost burdens. According to major foreign media, marine insurance specialists have begun renegotiating contracts reflecting increased war risk premiums. Some observers expect Persian Gulf navigation insurance premiums to surge by up to 50%. An official at a domestic shipping company explained, "Separate rates will apply to high-risk zones. If alternative routes are not feasible, vessels must transit while accepting higher rates." Depending on contract structures, insurance costs may also be passed on to cargo owners such as refineries.
Conversely, some predict that a swift conclusion to the conflict could benefit the global economy by eliminating uncertainty. Ed Yardeni, president of Yardeni Research, analyzed on the 1st (local time), "This attack has effectively neutralized the Iranian navy. This is positive in that it could significantly reduce Middle East risk after the war ends." The analysis suggests that if the U.S. ends the war or enters a ceasefire without damaging Iran's oil production and export facilities, falling oil prices could help ease U.S. inflation and improve demand.