Strait of Hormuz closure affecting Korea Inc., from oil to petrochemicals, chips and autos

Korean industries are facing growing pressure from rising oil prices and shipping costs after military clashes between the United States and Iran have led to the closure of the Strait of Hormuz.

Containers are stacked at the Port of Busan in Busan on March 6. [YONHAP]

Korean industries are facing growing pressure from rising oil prices and shipping costs after military clashes between the United States and Iran have led to the closure of the Strait of Hormuz.

The clashes began on Feb. 28 when U.S.-Israeli forces carried out airstrikes on Iranian military facilities. Iran responded by announcing the closing of the Strait of Hormuz on March 2.

The Strait of Hormuz, located between Iran and Oman, serves as a key shipping route for crude oil from major Middle Eastern producers including Saudi Arabia, Iran, Iraq and the United Arab Emirates. About 20 percent of the world’s oil and liquefied natural gas (LNG) shipments pass through the narrow waterway, making it one of the most critical energy routes in global trade.

The oil refining and petrochemical sectors face the most direct impact. Korea imports 70.7 percent of its crude oil and 20.4 percent of its LNG from the Middle East, according to the Korea International Trade Association.

Oil, shipping costs surge

Rising oil prices and transport costs have already risen after the closure of the Strait of Hormuz.

The price of Brent crude oil for June delivery rose 28.37 percent compared to Feb. 27, just before the Iran war began, while the Baltic Dirty Tanker Index, which tracks crude oil shipping rates, climbed about 55 percent, according to financial data platform Investing.com on Friday.

Another issue involves seven oil tankers carrying crude oil for Korea that remain stranded near the Strait of Hormuz. Each vessel can carry up to 2 million barrels of crude oil, meaning shipments equivalent to about one week of Korea’s domestic oil consumption have stalled.

A Luojiashan tanker sits anchored in Muscat, as Iran vows to close the Strait of Hormuz, amid the U.S.-Israeli conflict with Iran, in Muscat, Oman on March 7. [REUTERS/YONHAP]

Refining companies are trying to secure alternative crude supplies from regions including the United States, Brazil and West Africa, as well as through pipeline routes that bypass the Middle East.

“We are trying to secure crude supplies, but if the situation continues we may have to reduce refinery operations,” an industry representative said. “If that happens the impact could spread to other industries.”

Petrochemical sector at risk

Petrochemical companies are also worried about possible factory shutdowns.

Many firms cut production last year after Chinese producers flooded the market with petrochemical products and drove prices down. As factories needed less raw material, companies kept only one to two months of naphtha — a petroleum-based liquid used to make plastics and other chemicals — in storage.

Yeochun NCC, which can produce 2.29 million tons of petrochemical products a year, told major customers on Wednesday that deliveries may be delayed because supply problems have disrupted production.

Impact across industries

Shipping companies are also dealing with higher costs as oil prices and insurance costs rise. Industry officials say higher shipping prices could lead to lower demand for cargo transport.

The impact is spreading to the auto industry as well. Hyundai Motor Group holds about a 10 percent share of vehicle sales in the Middle East market, according to Bernstein Bank.

Cars are tightly parked at a used car export complex in Incheon on March 8. [YONHAP]

A prolonged disruption in the Strait of Hormuz could delay shipments of vehicles and auto parts while increasing logistics costs.

The semiconductor industry is also watching shipping costs closely. Helium, a key material used to cool lithography equipment and check wafer leaks in semiconductor production, largely comes from Qatar. About 90 percent of the helium used in Korea is imported from the country.

Chipmakers are also watching whether the war will slow data center construction in the Middle East, which could reduce the demand for semiconductors.

Traveling may be difficult

Airlines are preparing for higher aviation fuel costs. Carriers expect fuel surcharges to increase next month and are watching for potential declines in passenger demand.

An Emirates Airbus A380 aircraft that has remained parked at the airport after its flight was cancelled is seen at Incheon International Airport on March 5. [REUTERS/YONHAP]

Travel agencies are also receiving more requests to cancel or refund trips to the Middle East as concerns about the Iran war grows.

“The Middle East serves as a major stopover point for flights to Europe, so the war is affecting not only Middle East travel packages but also those for Europe,” a travel industry representative said. “If oil prices continue to rise and push up airfare, overall travel demand could weaken.”

Major Korean travel agencies including Hanatour and Mode Tour have decided to offer full refunds without cancellation fees for Middle East travel packages and trips that transit through the region in March.

“Most cancellation fees for package tours come from airline tickets,” an industry representative said. “Airlines are offering free cancellations through the end of March, so travel agencies decided to provide full refunds when customers request them.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom. BY KIM KYUNG-MI [paik.jihwan@joongang.co.kr]