Over 100 Billion Won Loss Expected in Refineries This Year due to Iraqi Civil War

Refineries are reducing crude oil imports from Iraq, but it costs several billion dollars more to substitute relatively cheap Iraqi crude oil with crude oil from other sources in the Middle East. Crude oil from Iraq is currently the cheapest, which means refineries have to bear a 100 to 200 billion won (US$97 to US$194 million) loss this year. For the crude oil refining industry in Korea, which is already under serious financial difficulties, the Iraqi situation is fatal.

According to the refining industry and Korea National Oil Company (KNOC) on August 12, the unit price per 1,000 barrels of crude oil from Iraq was the cheapest among 15 import countries at US$105,000 as of June this year. Korea imported 6.238 million barrels of crude oil from Iraq in June, and 34.33 million barrels during the first half.

Crude oil from Saudi Arabia, from which Korea imports the most, was US$109,000 per 1,000 barrels as of June, and crude oil from Kuwait, the number two import country, was US$108,000.

Compared to other Middle Eastern or Asian countries, the price differentials are even bigger. The unit price per 1,000 barrels of crude oil from Qatar and the UAE was US$110,000.

If Iraqi crude oil is substituted with the alternatives from other Middle Eastern countries, an increase in import costs is inevitable. In June, imports from Iraq decreased by 37 percent compared to the previous year. Assuming this 37 percent is substituted by oil from Saudi Arabia, an additional cost of 14.6 billion won (US$14.2 million) will incur only in June, which is equivalent to 170 billion won (US$165 million) per annum.