Dollars Earned from Semiconductor Exports... Disappeared Due to High Oil Prices

High Oil Prices Dragging Down Trade Balance

Energy Economics Institute

[Asia Economy Reporter Oh Hyung-gil] As international oil prices rise, it is forecasted that the amount South Korea spends on energy imports this year will approach half of last year's semiconductor export value.

It is pointed out that due to the prolonged high oil prices, a trade deficit is inevitable for the first time in 15 years since the 2008 financial crisis.

On the 18th, the Korea Energy Economics Institute (KEEI) predicted in its report titled "The Impact and Response Strategy of the Prolonged Global Energy Supply Chain Crisis 100 Days after the Russia-Ukraine War" that the increase in energy import costs this year will reach $62.2 billion (approximately 80.045 trillion KRW).

The institute forecasted that the average international oil price this year will be $100.4 per barrel. If the global economic slowdown accelerates rapidly due to recent inflation, the increase in oil demand will slow, resulting in a low of $93.7 per barrel. Conversely, due to sanctions on Russia, the supply of Russian oil could be restricted, pushing prices up to a maximum of $108.2 per barrel.

Although high oil prices have persisted recently, the analysis suggests that energy demand will not significantly decrease. Based on last year's energy import volume and this year's oil price forecast by the institute, the increase in energy import costs was estimated.

This amount is nearly half of last year's semiconductor export value of $128 billion.

In particular, as energy import costs increase, if exports and imports remain similar to last year, the trade balance this year is expected to show a deficit ranging from at least $14.1 billion to as much as $27.2 billion.

Already, from January to May this year, cumulative import costs have approached $300.4 billion, resulting in a trade deficit of $7.8 billion.

The report stated, "Despite achieving the highest export value during this period ($292.6 billion), a deficit was recorded due to the sharp rise in international energy prices," and explained, "The increase in energy import costs during the three months after the Russia-Ukraine war (March to May) compared to the same period last year alone reached $22.3 billion, which is considered a major cause of the trade deficit."

It further suggested, "While temporarily applying consumer price increase suppression through tax reduction policies as a measure against inflation, a two-track strategy is needed to gradually reflect the increased raw material costs for electricity and gas production and supply in consumer prices."

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