The geopolitical instability following the US and Israel's invasion of Iran is expanding, causing fluctuations in oil prices and impacting South Korea's economy and industries.
Following the invasion of Iran by the US and Israel, South Korea is facing significant geopolitical instability that is causing increased volatility in oil prices, with potential ripple effects on the nation's economy and industrial sectors. While some experts believe that the direct impact from trade with Middle Eastern countries remains limited due to relatively low trade volumes, concerns grow that prolonged conflicts could lead to severe disruptions in raw material supply and soaring exchange rates, wreaking havoc on the real economy.
The South Korean automotive industry, which looked forward to a recovery in performance this year after overcoming the shock of high tariffs under the Trump administration, is increasingly anxious about the potential downturn in Middle Eastern demand—a market they have been working hard to cultivate. In 2023, Hyundai and Kia sold 385,000 vehicles in the Middle East, a decline from 414,000 units in the previous year, representing a 7.5% drop in sales over two years. Hyundai Motor Group is in the process of constructing a plant in Saudi Arabia intended to produce 50,000 electric and internal combustion vehicles annually by the fourth quarter of this year; however, the blockade of the Hormuz Strait has complicated the supply of essential components, leaving the operational timeline uncertain and forcing a complete reassessment of their Middle Eastern strategies.
The petrochemical industry, already undergoing restructuring due to oversupply from China and worsening management, is feeling direct impacts from the geopolitical tensions. Yeocheon NCC has announced it cannot supply products to customers due to delays in naphtha supply caused by the blockade of the Hormuz Strait. Unlike crude oil, which can be stockpiled by governments and companies for longer periods, naphtha reservoirs only hold supplies for 1-2 months. If the situation in the Middle East continues for an extended period, the disruption of ethylene—a critical feedstock for industries producing rubber, plastics, and textiles—could halt production across the board, leading to broader economic ramifications. Airlines and shipping companies are also significantly affected by changes in oil prices and exchange rates, suggesting a looming crisis in various sectors if the conflict persists.
