Amid a growing prospect that an oil war will further grip the global economy, some energy experts say that Korea needs to increase oil imports from the United States to catch two birds with one stone — strengthening Korea-U.S. relations and diversifying oil import sources.
The amount of crude oil imports from the United States reached US$8,987.49 million in 2019, more than double the previous year's US$4,510.25 million, the Korea National Oil Corp. (KNOC) said on March 15.
U.S. crude oil represented 13 percent of Korea’s total oil imports last year, ranking third after crude oil from Saudi Arabia (US$19,890.45 million) and Kuwait (US$999.95 million). Shale oil mining has made the United States the world’s No. 1 oil producer with 13.1 million barrels per day, surpassing Saudi Arabia and Russia.
Even considering transportation fees, the Western Texas Intermediate (WTI) is cheaper than Dubai Crude. U.S. crude oil has advantages in terms of tax. Currently, there is a 3 percent tariff on crude oil from the Middle East, but no tariff on crude oil from the United States under the Korea-U.S. Free Trade Agreement (FTA). In addition, the Korean government is reimbursing 16 won per liter for non-Middle East crude oil as part of efforts to diversify crude oil import sources.
The problem is that crude oil imports from the United States will be reduced in the face of a plunge in oil prices. In the past, the WTI maintained a price range of about 10 percent lower than Dubai Crude, but the price difference is only US$1 due to a recent plunge in oil prices. Considering the cost of transportation, U.S. crude oil imports need to be reduced.
Yet energy industry experts call for a strategic judgment on importing U.S. crude oil. “As U.S. shale gas companies are expected to go under one after another due to low oil prices, the U.S. financial market where corporate bonds of these companies are traded can also be shaken,” said industry insider. “If the Korean government gives incentives for importing crude oil from the United States, it will help improve Korea-U.S. relations.”