Martial Arts: "If Oil Prices Surge Above $80 Due to Middle East Risk, Exports Will Worsen"

[Asia Economy Reporter Hwang Yoon-joo] Recent political instability in the Middle East has led to analyses suggesting that if oil prices surge above $80 per barrel, export price competitiveness will weaken and overseas demand will decline, resulting in reduced exports. If high oil prices persist, rising international raw material costs and reduced domestic consumption capacity are expected to increase the burden on imports as well.

According to the Korea International Trade Association's International Trade and Commerce Research Institute report titled "The Impact of Middle East Instability on International Oil Prices and Trade," if international oil prices rise by 10% from a stable level, South Korea's exports are estimated to increase by 3.2%. This is attributed to factors such as rising export unit prices, improved fiscal conditions in oil-producing countries, and expanded orders and deliveries of offshore plants. Conversely, imports are expected to increase by 3.3% due to higher crude oil import prices, leading to a deterioration in the trade balance.

By major industry sectors, petroleum products, petrochemicals, steel products, ships, and automobiles are expected to see export growth effects driven by unit price increases when oil prices rise. Among the 13 major export items, 10 items (accounting for 52.2% of export share) showed a significant positive correlation between oil prices and exports.

The influence of oil prices on South Korean exports has expanded compared to the past. The export share of oil price-affected items such as petrochemicals and petroleum products rose sharply from 10.9% in 2000 to 16.0% in 2018. This is also due to the export market shifting after the financial crisis, with exports to emerging countries including China and oil-producing countries increasing to over 50%.

International oil prices (Dubai crude) rose close to $70 per barrel in January due to OPEC production cuts, expectations of a US-China trade deal, and Middle East tensions, but the upward trend eased after the US announced strengthened economic sanctions instead of military action.

The report forecasts, "If new nuclear negotiations between the US and Iran reach another deadlock and military confrontation occurs around the Strait of Hormuz, which accounts for 30% of global crude oil maritime transport, oil prices could surge above $80 per barrel."

Meanwhile, former US President Donald Trump withdrew from the nuclear agreement (JCPOA) signed during Barack Obama's administration and reinstated sanctions on Iran in 2018. In 2019, the US ended the exemption allowing South Korea to import Iranian crude oil, freezing the Korean won settlement system between South Korea and Iran, which dealt a significant blow to trade and overseas expansion with Iran. From January to November 2019, South Korea's exports to and imports from Iran decreased by 88.6% and 47.8%, respectively, compared to the previous year.

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