[The Editors' Verdict] The Paradox of War

Delay in Middle Eastern Mega-Facility Operations
A Temporary Brake on Global Oversupply
Time to Catch Our Breath and Prepare for Structural Reform

"War is undoubtedly a negative factor. However, if the operation of large-scale petrochemical facilities in the Middle East is delayed, it could buy us valuable time."

The environment facing Korean companies this year remains challenging. The military conflict that has flared up in the Middle East is disrupting global energy prices and logistics flows. Protectionist policies show no signs of easing, and the reorganization of supply chains continues.

Uncertainties are piling up regarding interest rates, exchange rates, and raw material prices. Both the cost structure and profitability across industries are under pressure. The burden on the refining and petrochemical sector, which has endured a prolonged recession, is increasing further. Having already suffered from weak demand and supply glut, the added variable of war could accelerate the industry's exhaustion. However, perspectives from the field differ somewhat. While war is certainly a negative factor, some suggest that delays in the operation of Middle Eastern petrochemical facilities could give the industry extra time.

This is an unexpected yet clear-eyed perspective. The biggest concern for Korea’s petrochemical industry has long been the operation of mega-scale petrochemical facilities being developed in the Middle East. After suffering a significant price shock due to China’s large-scale capacity expansion, there were growing fears that a full-scale launch of Middle Eastern plants would worsen the global supply glut. Now, with the potential for military tensions to delay some project timelines, there is a sense in the industry that this gap could serve as an opportunity to reassess strategies.

Kumho Petrochemical Yeosu Plant

Crisis does not always translate into opportunity. How that period of crisis is used determines the next phase of the industry.

History has shown this time and again. Wars and crises often act as catalysts for shifts in industrial direction. The first oil shock that followed the Middle East War in 1973 delivered a major blow to the Korean economy. Soaring energy prices shook every sector, but also prompted the country to foster heavy and chemical industries and to expand the refining and petrochemical sectors. That was when energy security and the importance of the materials industry first became central to industrial policy.

The current situation facing the petrochemical industry is not much different. Since the large-scale expansion in China, the global petrochemical market has entered a phase of structural oversupply. Prices of general-purpose products have been under prolonged pressure, and domestic companies’ profitability has rapidly deteriorated. Some companies have begun lowering facility utilization rates or restructuring their business models. Industry-wide discussions on structural reform are gaining momentum, including divesting non-core businesses and reassessing joint ventures.

If the mega-scale petrochemical facilities in the Middle East begin operating simultaneously in this environment, supply-side pressure on the market could intensify further. Should the current geopolitical conflict slow down some projects, the industry may have a moment to catch its breath—a window of time to prepare for restructuring.

However, time alone will not save the industry. In the past, crises affected all companies but did not yield the same results for each. Companies that used the time to transform their structure captured the next cycle, while those that did not fell behind in the market.

Geopolitical risk is no longer a temporary variable but a constant. The technological rivalry between the United States and China is redrawing the industrial landscape. Crisis comes to all equally. The outcome of the next cycle will depend on how this crisis is used.

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