Concerns over a prolonged Middle East conflict following U.S. and Israeli airstrikes on Iran have put Korea's refining and transportation industries on high alert.
Airlines have launched emergency responses to defend profitability amid a "triple blow" of surging oil prices, a stronger dollar, and flight disruptions. Shipping companies are closely monitoring the situation, weighing both opportunities and risks from rising freight rates and insurance premiums tied to a potential Strait of Hormuz blockade. Refiners have begun reviewing contingency measures, including supply chain adjustments, to prepare for possible crude oil supply disruptions.
According to industry sources on the 3rd, the armed conflict between the U.S. and Iran has exposed Korean airlines to direct and indirect impacts, including flight cancellations and rising fuel costs.
Korean Air (003490) has canceled flights KE951 and KE952 between Incheon and Dubai, UAE, through the 5th. Operations have been suspended for six consecutive days since emergency diversions and cancellations were ordered immediately after the U.S. strikes on Iran on the 28th of last month. Korean Air is currently the only Korean carrier operating Middle East routes, with seven weekly flights between Incheon and Dubai.
"Additional cancellations may occur depending on local conditions, including whether Dubai airport remains closed," a Korean Air spokesperson said.
According to AP and other foreign media, major UAE carriers including Etihad, Emirates, and flydubai have partially resumed operations.
Airlines are particularly sensitive to exchange rate and oil price fluctuations. Since fuel costs, lease payments, maintenance expenses, and overseas accommodation costs are settled in dollars, a rising exchange rate directly increases cost burdens.
Korean Air reportedly incurs approximately 48 billion won in foreign exchange translation losses for every 10-won rise in the exchange rate. With the won-dollar rate surging about 20 won on the day due to Middle East risks, losses could widen significantly if tensions persist.
The spike in international oil prices is the most concerning factor. Iran's Revolutionary Guard Corps has declared a blockade of the Strait of Hormuz, and civilian casualties have resulted from attacks on merchant vessels. Extended flight restrictions and potential strikes on oil facilities are also being raised as possibilities.
Airlines cannot fully pass on soaring jet fuel costs through fuel surcharges, leading to growing operating losses. Korea is particularly vulnerable to geopolitical risks in the region, as Middle Eastern crude accounted for 69.1% of total oil imports last year, with over 95% passing through the Strait of Hormuz.
The shipping industry is weighing the "benefit" of rebounding maritime freight rates from logistics disruptions against the "damage" from rising insurance and fuel costs.
According to the Baltic Exchange, spot average rates for Very Large Crude Carriers (VLCCs) reached $204,000 as of the 27th of last month, up 196% from the beginning of the year and the highest level since April 2020. Transshipment costs for bulk carriers passing through the Middle East have also surged, reflecting uncertainty, as Korean shipping companies including HMM (011200) and Pan Ocean (028670) have recently expanded their bulk carrier operations.
However, some view the freight rate increase as likely to be short-lived. "Given that most of Iran's maritime crude exports pass through the Strait of Hormuz, a prolonged blockade seems unlikely," an industry official said. "In that case, profit gains from rising freight rates for Korean shippers would be limited."
Rising fuel costs due to higher oil prices and insurance premium surcharges for elevated risk also burden shipping companies. War risk insurance premiums for the Strait of Hormuz have historically surged to five to seven times peacetime levels.
Refiners say immediate crude supply disruptions in Korea are unlikely but remain vigilant. Korean refiners source 60-70% of their crude from the Middle East, with 95% of those imports passing through the Strait of Hormuz.
In the short term, processing volumes secured earlier at lower prices is improving refining margins. However, a prolonged high oil price environment would inevitably increase cost pressures and supply instability.
"We are working closely with the government to ensure there are no domestic supply disruptions," a refinery industry official said. "Since crude oil imports are the biggest issue, we are focusing our monitoring efforts there."