"Middle East Shock Won't End With the War"... KIET: "Geographical Diversification Alone Can't Solve Supply Chain Risks"

Japan Taps Oil Reserves and Seeks Alternatives,
China Implements Price Controls and Adjusts Transport Routes
Russia Benefits from Energy Shift... "Pivot to Asia Likely to Accelerate"
"Comprehensive Response System Needed for Energy, Raw Materials, and Logistics"

According to an analysis by a national research institute, the geopolitical risks originating in the Middle East, triggered by the Iran war, are accelerating changes in the global supply chain and energy order, going beyond a mere temporary shock. In particular, for South Korea, which has a high dependence on Middle Eastern energy, the report suggests that a comprehensive response strategy is needed—one that goes beyond simply geographically diversifying supply chains to encompass energy, raw materials, logistics, and industrial security.

The Korea Institute for Industrial Economics and Trade (KIET) stated in its report, “Responses and Implications of Japan, China, and Russia to the Spread of Middle East-Originated Risks,” released on May 20, that “the United States-Iran war is acting as a catalyst intensifying the structure of geopolitical competition.” The analysis also found that Japan, China, and Russia are each employing different response strategies, reflecting their distinct energy structures and geopolitical positions.

Japan, due to its structure of high dependence on Middle Eastern crude oil, is experiencing direct shocks. The shortage of crude oil and naphtha supply has negatively affected its petroleum, coal, and chemical industries, and has even led to a decrease in the production of plastics, rubber, and steel. In response, the Japanese government has initiated emergency measures at a pan-government level, including the release of oil reserves, securing alternative procurement sources, and stabilizing oil prices. Over the long term, diversification of energy and raw material import sources and a fundamental review of security strategies are expected to accelerate.

KIET recommended that since South Korea and Japan have similar energy import structures, both countries should expand cooperation in crisis response and overseas resource development.

The impact on China is assessed to be relatively limited. While maintaining economic cooperation with the Middle East, China has diversified its import sources to Russia and Central Asia, and has secured a certain level of domestic energy base. However, disruptions have been observed in the downstream sector of the oil value chain and in the supply chains for certain industrial materials such as helium and sulfur.

The Chinese government is responding through temporary oil price controls, approval of the use of commercial oil reserves, and adjustments to energy and raw material import sources and transportation routes. At the same time, China is expected to accelerate its strategies for clean energy transition, supply chain self-reliance, and expanding the influence of the yuan.

Russia is viewed as utilizing this situation as a strategic opportunity. Due to rising international oil prices and disruptions in the supply of Middle Eastern raw materials, alternative demand for Russian oil, gas, fertilizer, and aluminum has increased, expanding its trade surplus and fiscal revenue. KIET believes that, based on these developments, Russia is likely to further intensify its offensive in the Russia-Ukraine war and accelerate its “Pivot to Asia” strategy, centered on the energy and raw materials markets.

KIET assessed that even after the end of the war, there is a high possibility that changes in logistics, energy, and geopolitics will become entrenched. Accordingly, South Korea must simultaneously pursue not only diversification of supply chains, but also diversification of energy and raw material supply chains, securing alternative logistics and transportation routes, and strengthening economic and industrial security centered on strategic industries.

KIET advised, “South Korea should aim for strategic autonomy by leveraging the strategic value of its assets to secure a resilient space for economic and industrial development,” adding, “It is necessary to adopt a flexible strategic positioning that varies the scope of cooperation by sector.”

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