Middle East Accounts for 70% of Korea’s Oil Imports
Middle East risks are on the rise in the wake of the recent bombing of a U.S. military base in Iraq by Iran. Experts point out that the conflict between the United States and Iran can shock the domestic as well as global economy in that Middle East oil accounts for approximately 70 percent of South Korea’s oil imports.
“U.S. allies in the Middle East can be in danger in that Iran is incapable of striking the U.S. mainland,” said Dankook University economics professor Kim Tae-ki, adding, “The price of crude oil will soar as the cost of oil transport through the Hormuz Strait increases.” He went on to say, “If a war breaks out, the global economy, which has been on the decline since the second half of last year, will be seriously affected and the South Korean economy will be further affected in that South Korean shipbuilders, automakers are currently less competitive than during the past Gulf and Iraq Wars.”
“The current situation is very problematic in that the South Korean economy is highly dependent on exports and exports from South Korea to the Middle East can drop to almost zero,” Hansung University economics professor Park Young-beom explained, continuing, “The past wars developed into all-out wars and did not last long but the current situation is different, which means it remains to be seen how it will affect the global economy.”
Yonsei University economics professor Yang Joon-mo mentioned that Iran is against escalation and, as such, the impact of the situation on the South Korean economy is likely to be rather limited. “Still, it may face a prolonged recession with the global economy, Chinese in particular, landing hard.”
The National Assembly Budget Office explained that oil prices affect the prices of manufactured goods and thus consumer prices are affected by geopolitical risks. “Still, long-term effects remain to be seen in that recent studies show that the prices in many cases are affected more by demand-side factors such as a recession than by supply-side factors,” it said.
The Institute for Korean Economy & Industry predicted that the conflict would help South Korea address deflation if it ends soon through diplomatic negotiations. “An increase in consumer prices can follow in that case, and then the South Korean economy, which is on the verge of deflation, can benefit from it,” it explained.