Triple Burden of Interest Rates, Inflation, and Exchange Rates Plus Oil Shock: Emergency Alert for Korean Industries

Task Forces Formed, Daily Emergency Meetings

Developing Response Plans for Crude Oil and Exports


Refiners Lower Operating Rates

Plant Operations Halted Due to Ethylene Shortage


One Dollar Increase Means $45.4 Million Lo

As the war between the United States, Israel, and Iran intensifies, the domestic industrial sector is busy preparing emergency measures amid concerns over a potential 'oil shock' originating from the Middle East. Amid a 'triple crisis' of rising interest rates, inflation, and exchange rates, companies are monitoring daily price fluctuations and supply-demand conditions for international crude oil, liquefied natural gas (LNG), and petroleum products. They are also securing additional sources of supply as a precaution and reviewing countermeasures against potential increases in raw material costs and shipping rates that could occur in a chain reaction.

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According to industry sources on March 20, major Korean conglomerates such as Samsung, LG, Hyundai Motor, and Hanwha have repatriated most of their employees or evacuated them to nearby safe zones, excluding only essential local personnel, immediately following the outbreak of war in the Middle East. Those remaining locally are working from home to ensure their safety, and each group is regularly checking on the status of their on-site staff. With bombings now affecting not only Iran and the Strait of Hormuz but also major energy facilities throughout the Middle East, it has become impossible to operate local businesses as usual.

Refining and petrochemical companies, which are directly impacted by global oil prices, have formed task forces centered around relevant departments and are holding daily emergency meetings. SK Group, for example, has departments such as strategy, operations, and production participating to establish response plans for crude oil procurement, domestic supply, product exports, and plant operations for each phase of the conflict.

If the volume of Middle Eastern crude imports decreases, refineries will have no choice but to lower their operating rates, which will, in turn, reduce petroleum product output. As a result, the refining industry has decided to prioritize domestic supply, with the remainder to be exported based on profitability. The longer the war drags on, the higher crude prices will rise and the harder it will be to secure volumes, meaning that even if export margins are strong, operating rates inevitably have to be reduced.

Petrochemical companies are facing severe operational difficulties, such as production disruptions, delivery delays, and declining profitability, due to a reduction in the supply of naphtha—a key raw material—and a sharp surge in its price. Yeochun NCC, which operates the largest ethylene production facility in Korea, recently declared force majeure to its clients and has seen its plant utilization rate drop to an all-time low. Hanwha Solutions, which does not have its own naphtha cracking center (NCC) and relies on externally sourced ethylene, had to halt operations just two days after the outbreak of the war because it could not secure ethylene supply.

An official in the petrochemical industry said, "The industry was already undergoing restructuring due to a global oversupply, but the situation has become even more serious because of the Middle East crisis. Even if the situation is resolved, it will take considerable time to recover to pre-war levels."

The airline industry has also been directly hit by soaring oil prices. Korean Air's annual estimated fuel consumption is around 30.5 million barrels, so for every one dollar increase in oil prices, the company's profit or loss changes by about 30.5 million dollars (approximately 45.4 billion won). To manage this high oil price risk, Korean Air is strengthening its oil price hedging strategy using derivatives and other financial instruments. The company hedges up to 50% of its projected fuel usage, utilizing appropriate hedging products depending on market conditions and oil price levels.

The semiconductor industry is closely monitoring the situation, as prolonged high oil prices could increase logistics costs for air-shipping semiconductors and raise electricity bills for operating chip plants. For essential elements in advanced semiconductor processes, such as helium and bromine—where dependence on Qatar and Israel is high—the industry has already diversified supply chains to prepare alternatives.

The home appliance industry is also operating regular meeting channels among relevant departments to monitor the impact on local operations, logistics routes passing through the Strait of Hormuz, and oil price trends. If the situation is prolonged, they are reviewing detailed plans on how much to lower product prices and adjust plant utilization rates to protect profitability.

The automotive industry is concerned that sales in the Middle East may decline as a result of the war. Companies are closely monitoring whether shipping rates for car carriers will rise due to increased international oil prices. In addition, they are preparing strategies to improve their sales mix by increasing the share of hybrid and electric vehicles, anticipating that high oil prices will shift consumer preference away from internal combustion engine vehicles. The power industry is also worried that rising international oil prices will drive up the prices of non-ferrous metals—a key raw material—thereby increasing raw material costs. Their response is to pass on the increased costs to selling prices in order to maintain overall sales volume.

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