The Korea Industrial Research Institute has released a report indicating that the ongoing conflict in the Middle East, particularly due to the heightened tensions between the US, Israel, and Iran, poses a substantial risk to South Korea's manufacturing sector. The report details that a 10% increase in international oil prices could lead to an average 0.71% rise in production costs for South Korean manufacturers. The report also underscores the potential for stagflation, a situation where inflation occurs simultaneously with stagnation, advising necessary precautions in light of the economic implications of the conflict.

The most significant risk factor identified in the report is the surge in oil prices, which have soared from $72 to as high as $130 per barrel following the outbreak of hostilities. The volatility in international oil prices, particularly the benchmarks of Dubai and Brent crude, remains a concern as the conflict appears to be ongoing, further complicating the supply chain. South Korea's reliance on imported oil, with over 70% sourced from the Middle East, highlights the country’s vulnerability to fluctuations in oil prices, especially as 99% of these imports navigate the strategically crucial Strait of Hormuz, which is currently affected by the conflict.

While the direct impact of trade with the Middle East on South Korea's overall exports is relatively small, comprising only about 2-3%, the report warns of potential indirect damage across various industries due to disruptions in maritime logistics. The concentration of trade with key Middle Eastern countries such as Saudi Arabia and the UAE adds another layer of complexity to South Korea's economic landscape, necessitating strategies to mitigate risks as the situation evolves.