[The View] Why South Korea Is More Vulnerable to Middle East Risks

For the United States, It's Diplomacy... For South Korea, It's an Economic Issue

A Double Blow: Rising Oil Prices and Logistical Uncertainty

The Challenge Posed by War: Achieving Energy Self-Sufficiency

Boyoung Seo, Professor at Indiana State University, USA

War is raging between the United States and Iran. While it may seem that the world is equally shaken whenever conflict erupts in the Middle East, the reality is that each country experiences the impact very differently. Especially in disputes like the current one, in which oil and maritime routes are involved, the pressure is much greater for South Korea than for the United States. The United States is an oil-producing nation with energy self-sufficiency, whereas South Korea relies almost entirely on imports for crude oil and natural gas. For the United States, war news is primarily a diplomatic or security issue, but for South Korea, it immediately translates into news about fuel prices and inflation.

In fact, every time risks originating from the Middle East intensify, the price of Dubai crude oil and South Korea's import prices rise rapidly, which is then reflected in producer and consumer prices with a time lag. Past cases suggest that when international oil prices rise by 10%, South Korea's consumer prices come under an additional upward pressure of about 0.2 to 0.3 percentage points. In such a structure, the potential for supply disruptions itself becomes a more serious source of anxiety than a simple price increase.

In the case of the United States, even if war drives up oil prices, the shock does not immediately shake the entire economy. This is because the United States is structured to offset rising energy prices with increased profits for certain industries. Like consumers in other countries, American consumers feel the burden of higher fuel costs, and rising oil prices could lead to inflation. However, technological developments have enabled the United States to extract oil from shale and to produce natural gas. As a result, energy companies can actually benefit from higher oil prices. Therefore, the shock of rising oil prices can be absorbed to some extent within the U.S. economy.

South Korea, on the other hand, is different. Higher oil prices do not just stop at increases in gasoline and diesel prices; they immediately ripple through to transport costs, production costs, and the cost of living. There are two main reasons for this. First, South Korea imports the vast majority of its energy. In an economy like South Korea, where imported energy accounts for a large share, rising crude oil prices directly affect the trade balance, corporate production plans, and household consumption sentiment. Moreover, South Korea has a relatively high proportion of manufacturing in its economy. This means that the shock of rising oil prices spreads more widely throughout the economy. Not only the refining, chemical, transportation, and airline industries, but also steel, distribution, and even domestic service industries face cost pressures. As a result, with a large manufacturing sector, South Korea's competitiveness weakens as energy prices rise, while its domestic economy also contracts—creating a double bind. This can even lead to an economic slowdown.

Second, South Korea's vulnerability does not arise simply from importing a lot of crude oil. Fundamentally, South Korea's supply chains are tied to specific regions. More than 70% of South Korea's crude oil imports come from the Middle East, and a considerable portion of liquefied natural gas (LNG) is also sourced from Middle Eastern countries such as Qatar. Furthermore, South Korea's refining industry has a high proportion of facilities optimized for processing Middle Eastern heavy crude, so switching imports to other regions in a short period incurs losses in both cost and efficiency.

The difference between South Korea and the United States is also evident in policy responses. The United States shapes international order through developments in the Middle East and treats rising energy prices as part of overall macroeconomic management. In other words, it is a country capable of managing and adjusting such shocks. South Korea, on the other hand, is more on the receiving end of these shocks, so its responses have to be much more practical. Securing oil reserves, adjusting fuel taxes, buffering logistics costs, and supporting vulnerable industries become key measures.

When instability in the Strait of Hormuz or the Red Sea increases, as it has recently, the problem becomes even more serious. Since a significant portion of South Korea's crude oil and natural gas passes through the Middle East, blockades of sea routes or higher shipping costs are directly reflected in energy prices. What matters here is not so much the actual aftermath of war, but the uncertainty in oil prices and logistics caused by the war. Even mere projections that the war will be prolonged cause volatility in oil prices and exchange rates, forcing companies to raise costs preemptively.

In the end, even the same war is a matter of diplomacy and security for the United States, but for South Korea, it is a problem of inflation and economic growth. The United States can manage and adjust rising oil prices, but in South Korea, that single variable can shake both the economy and household livelihoods. In considering the U.S.-Iran war, what South Korea must ask first is not "Will there be a war?" but "How long and how deeply will its aftermath shake our economy?" What is needed now is a clear-eyed understanding of how the shock of war will spread through the South Korean economy.

Boyoung Seo, Professor at Indiana State University, USA

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