Increased Burden on Korean Companies with High Overseas Crude Oil Dependence Amid the Russia-Ukraine Crisis (Comprehensive)

Domestic and International Organizations "Oil Prices Expected to Exceed All-Time High, Reach $150~185"

[Asia Economy Reporter Jeong Dong-hoon] As international oil prices soar due to Russia's invasion of Ukraine, the cost burden on Korean companies, which have the highest crude oil dependence among OECD member countries, is increasingly intensifying. In particular, concerns are growing as forecasts suggest prices could rise from the record high of $116?147 per barrel during the 2008 financial crisis to $150?185 per barrel.

On the 3rd (local time), U.S. bank JP Morgan Chase projected that if disruptions in Russian crude oil supply continue, Brent crude prices could rise to $185 per barrel. This level far exceeds the record high of $147 per barrel recorded during the 2008 global financial crisis. JP Morgan analyzed that currently 66% of Russian crude oil is struggling to find buyers and expressed concern that it could become subject to further sanctions, making sales in the market difficult.

Domestic government research institutes also foresee a significant rise in international oil prices. The Korea Energy Economics Institute projected that if Russian energy is included in Western sanctions, international oil prices could rise to $150 per barrel. Depending on the level of economic sanctions and Russia's response, prices could soar to $150 per barrel.

In fact, international oil prices are rising sharply. Dubai crude, which was around $76.9 per barrel at the beginning of this year, surged to $95.8 immediately after Russia's invasion of Ukraine. On the day before the announcement of Russia's removal from the SWIFT payment network, prices soared to $110.1. On the same day, West Texas Intermediate (WTI) crude for April delivery on the New York Mercantile Exchange (NYMEX) briefly surged to $116.57 per barrel, marking the highest price since September 22, 2008.

International credit rating agency Moody's identified Korea as one of the major importers negatively affected by rising commodity prices caused by Russia's invasion of Ukraine, which is putting inflationary pressure on emerging markets. Moody's stated, "Commodity price pressures are leading to currency depreciation in some emerging markets and increasing inflation through import prices," and forecasted that "importers such as China, Turkey, Korea, Japan, India, and Indonesia will be most negatively impacted." It also predicted, "Rising oil and food prices limit household spending on other goods," and "commodity price pressures will tighten fiscal conditions and weaken growth."

Domestic companies that import large quantities of crude oil for energy sources and raw materials are in an emergency situation. According to the Hyundai Research Institute, production costs have surged in key domestic industries such as refining, steel, and chemicals. When oil prices reach $100 per barrel, the cost increase rate in the refining industry reached 23.5%, with steel (5.26%) and chemicals (4.82%) also significantly rising.

A steel industry official said, "Blast furnaces that melt iron require a lot of coal or electric energy, and rising oil prices can lead to higher electricity rates, which is a burden," expressing concern that "if oil and energy prices do not stabilize, it could greatly affect profits this year." A petrochemical industry official also predicted, "With rising international oil prices, naphtha (a basic raw material for plastics and textiles) prices are also increasing, and if demand does not support this, profitability will deteriorate."

To minimize the impact on domestic energy supply and the internal economy, there are calls for policies such as reducing fuel taxes, extending the suspension of tariff quotas, increasing the operating rate of coal power plants, and expanding the scope of electricity rate hikes. Professor Lee Jeong-hee of the Department of Economics at Chung-Ang University stated, "As economic sanctions against Russia expand comprehensively, energy and raw material supply chains are showing instability," and forecasted, "If costs increase and inflationary pressure rises, both households and companies are likely to reduce spending."

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