Iran deal offers relief to S. Korean economy but lower energy prices may take time
Seoul, June 15
A ceasefire agreement between the United States and Iran and plans to reopen the Strait of Hormuz have eased one of the biggest external risks facing South Korea's economy, but oil prices could take time to stabilise and return to pre-war levels, experts said on Monday.
US President Donald Trump announced that Washington and Tehran have reached a peace deal aimed at ending their months-long conflict, saying that the strategically vital Strait of Hormuz will reopen once the agreement is formally signed later this week.
International oil prices retreated after the announcement. Brent crude fell to around US$87 per barrel and West Texas Intermediate (WTI) dropped to around US$84 per barrel, down from levels that had at one point approached US$100 during the conflict, reports Yonhap news agency.
The latest development is particularly significant for South Korea, which imports virtually all of its crude oil, with roughly 70 percent originating from the Middle East and much of it transported through the Strait of Hormuz. Earlier this year, the country scrambled to secure alternative crude supplies and shipping routes.
Experts say the reopening of the strait is expected to reduce the risk of supply shortages, ease shipping delays and lower war-risk insurance premiums and freight rates, potentially putting further downward pressure on oil prices.
South Korea's refining and petrochemical industries stand to benefit the most.
Refiners rely heavily on Middle Eastern crude, while the petrochemical sector depends on naphtha imported largely from the Gulf region. Lower crude prices would eventually reduce import costs and improve margins across energy-intensive industries.
Still, industry officials and experts caution that it may take some time before consumers feel the impact of lower oil prices.
Changes in international oil prices typically take two to three weeks to be reflected at domestic gas stations due to shipping times, refining processes and inventory cycles.
After surging following the outbreak of the Middle East conflict, domestic fuel prices have remained above the 2,000-won mark despite modest declines in recent weeks.
According to the Korea National Oil Corporation's Opinet system, the average nationwide gasoline price during the second week of June fell 0.5 won from the previous week to 2,009.9 won per liter, while diesel prices slipped 0.3 won to 2,004.8 won per liter.
Ships carrying crude oil have been stranded in the Persian Gulf for more than three months, while damaged production facilities may require additional time before they can resume normal operations.
Last week, HMM's oil tanker Universal Winner and a liquefied natural gas (LNG) carrier arrived in South Korea after exiting the Strait of Hormuz, reducing the number of Korean vessels stranded in the region to 24.
The strong Korean won-dollar exchange rate presents another challenge.
The won has remained near the 1,500-per-dollar level in recent months, raising import costs and potentially offsetting some of the benefits from lower crude prices.
Industry officials also remain cautious over the durability of the ceasefire, prompting South Korean refiners to take a wait-and-see approach to increasing imports of Middle Eastern crude in the near term.
Having spent months diversifying supply sources amid the conflict, refiners are reluctant to quickly reverse course until they gain greater confidence in the security of shipping routes through the strait and the full implementation of the agreement.
— IANS
Reader Comments
South Korea is smart to diversify supply sources. India should learn from this - we were stuck when Russia-Ukraine war happened. Our refineries are already running at full capacity, but lower crude prices would be a relief for our common man. Petrol at Rs 100+ is killing our budgets. But will this peace deal actually hold? The US-Iran relationship is like a Bollywood drama - full of twists. 😅
This is why India needs to accelerate renewable energy. Every time there's a conflict in the Gulf, our entire economy goes into panic mode. We have so much sun and wind - why are we still so dependent on Middle Eastern oil? The government should use this opportunity to push more EVs and solar plants. But I guess politics and business interests will keep us addicted to oil for now.
Interesting how South Korea managed to keep their ships moving despite the blockade. India should take notes on how they handled logistics. But let's be honest - the story here is that US-Iran deal might not last. Trump is unpredictable and Iran has always played the long game. For Indian consumers, don't expect pump prices to drop anytime soon. Our oil companies will milk this situation for maximum profits before passing on any benefits. 💸
Meanwhile, here in India we're still paying through our noses for petrol and diesel. Even if international prices come down, our government will quietly increase excise duty and keep prices high. Remember how they never reduced prices when crude fell to negative in 2020? South Korea might benefit, but for Indian aam aadmi, this news means nothing until we see actual relief at the pump. 🙄
J We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.