"US-Iran Military Conflict Expected to Continue... Need for Measures to Preserve Economic Cooperation Base with Iran"

[Asia Economy Reporter Joo Sang-don] A national policy research institute has analyzed that the possibility of a full-scale war between the U.S. and Iran is low, but military conflicts are expected to continue. The Korea Institute for International Economic Policy (KIEP) advised that long-term measures are necessary to preserve the economic cooperation foundation with Iran in response to this situation.

On the 10th, KIEP released a report titled "Impact and Response to the U.S.-Iran Conflict Incident" containing these findings.

The report analyzed that since both sides are refraining from additional military countermeasures, the possibility of a full-scale war between the U.S. and Iran in the future is low. However, sporadic military clashes are expected to continue, especially in regions where Iran's military influence is strong, such as Iraq, Syria, Lebanon, and Palestine.

KIEP viewed the impact of this incident on South Korea's energy supply as limited. First, since South Korea stopped importing Iranian crude oil after May 2019, there is no significant disruption in crude oil supply. Although unlikely, if Iran blocks the Strait of Hormuz or attacks Saudi Arabian oil facilities, supply could decrease, negatively affecting South Korea's crude oil supply.

South Korea's import share of Middle Eastern crude oil accounted for about 72% of the total in 2019 (January to November), and natural gas imports accounted for 39%.

In the event of an actual rise in oil prices, both positive and negative effects are expected to appear. For petrochemical and mineral fuel exports, which accounted for 15.4% of South Korea's exports (January to November 2019), a slight increase in oil prices could act as a positive price factor.

However, if the oil price increase is significant, there are concerns about profit deterioration due to rising prices of raw materials such as naphtha. The increase in final product prices is lower than the rise in raw material prices, negatively impacting profits.

Jung Jae-wook, head of the Africa-Middle East team at KIEP's World Regional Studies Center, said, "If South Korea's military deployment to the Strait of Hormuz or other regional military involvement occurs, government-level diplomacy with Iran is expected to face difficulties." He added, "As the possibility of a short-term resolution of the U.S.-Iran conflict disappears, long-term measures are needed to preserve the economic cooperation foundation with Iran, a key partner in the Middle East region."

This content was produced with the assistance of AI translation services.