"High Possibility of Prolonged Middle East Conflict... Need to Discover New Crude Oil Sources"

Published 02 Feb.2024 10:26(KST)

With the first U.S. military casualty reported since the outbreak of the Israel-Hamas war, raising concerns about the potential escalation of the Middle East conflict, experts have suggested that South Korea should also seek new crude oil sources in preparation for a prolonged Middle East dispute.

The Korea Institute for International Economic Policy (KIEP) stated in its report titled "Expansion of the Middle East Conflict and Its Impact on Our Economy" on the 2nd, "If crude oil import sources are concentrated in a specific region, changes in the local situation could significantly destabilize our energy security," emphasizing this point.

[Image source=Yonhap News]

South Korea's dependence on crude oil imports from the Middle East decreased by about 26.1 percentage points over five years, from 85.9% in 2016 to 59.8% in 2021. However, due to the global crude oil landscape's bloc formation trend following the Russia-Ukraine war outbreak, it rose to 67.4% in 2022, an increase of 7.6 percentage points compared to the previous year.

Last year, the cumulative figure up to the third quarter further expanded to 72.8%, and quarterly data showed a rising trend with 70.2% in the first quarter, 72.1% in the second quarter, and 76.3% in the third quarter.

Yoo Gwang-ho, a senior researcher at the Center for World Regional Studies 2, Africa-Middle East & Latin America Team, said, "It is necessary to manage so that dependence on Middle East crude oil imports does not expand further and to continue efforts to discover new crude oil sources from a long-term perspective."

Researcher Yoo predicted that among three scenarios for the future of the Middle East conflict?▲regional tension easing ▲prolonged regional tension ▲full-scale war expansion?the likelihood is high that it will proceed with "prolonged regional tension."

Yoo stated, "Considering the domestic situations of the U.S. and Iran, such as the upcoming U.S. presidential election and Iran's economic recession, the possibility of 'full-scale war expansion' is the lowest. Israel's strong will to resolve the Hamas issue through this war and the perceptual differences between Israel and the U.S. regarding solutions for the Gaza Strip suggest that the possibility of prolonged regional tension is somewhat greater than a permanent Israel-Hamas ceasefire agreement."

In this case, trade with European and North African countries could be disrupted, and supply costs for parts to Korean manufacturing plants in Egypt and Eastern Europe?such as those in home appliances, petrochemicals, and batteries?may increase. Inflationary pressures centered on raw materials are also expected to intensify.

Researcher Yoo pointed out, "Rising international oil prices due to worsening regional political instability and increased logistics costs caused by supply chain disruptions could lead to overall inflationary pressure. Continued instability in Israel and its neighboring countries is expected to disrupt the business activities of Korean companies operating locally, and if instability in Iraq persists, the willingness to invest there may again weaken."