Korea prepared for economic fallout from Iran

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Korea prepared for economic fallout from Iran


Finance Minister Hong Nam-ki, second from left, holds an emergency meeting in Seoul on Monday to discuss the escalating tensions between Iran and the United States and the impact on the Korean economy. [YONHAP]

Oil reserves may be released into the market in the event of price surges as a result of escalating tensions in the Middle East, the government said.

A total of 96.5 million barrels of oil was stockpiled by the government as of the end of November. The reserves equal 200 million barrels when private company inventory is included.

The government said that so far supplies are steady and no signs of disruption have been observed.

But it remains prepared.

“As our crude oil and liquefied natural gas [LNG] imports have high dependency from the Middle East, the government along with the private companies will continue to monitor the situation in the Middle East as well as the international oil and gas market trend and act swiftly to minimize the impact on the local market,” said Joo Young-joon, deputy minister of energy and resources at the Ministry of Trade, Industry and Energy, said Monday.

Crude imports from the Middle East of the first 11 months of 2019 accounted for 70.3 percent of Korea’s total usage, while LNG from accounted for 38.1 percent of total usage.

Since May, no oil has been imported from Iran due to sanctions imposed by the United States, according to the Korea Petroleum Association.

In the first four months of the year, Korea only imported 33.2 million barrels of oil from Iran, which accounted for 3.4 percent of the total amount of crude imported overseas in the first 11 months.

The deputy minister held an emergency meeting with leading Korean refineries, including SK Energy, GS Caltex, S-Oil and Hyundai Oilbank, as well as the Korea Petroleum Association and the Korea Energy Economics Institute in the wake of the U.S. drone strike in Baghdad last week that killed Iran’s top general Qassim Soleimani.

According to the Korean International Construction Information Service, 104 Korean construction companies are working on 326 projects in the Middle East. Of the 326 projects, one-third are considered to be in the final stages.

While there no construction companies are active in Iran, several are working in Iraq. In Iraq, it is estimated that 14 Korean construction companies are working on 30 or so projects.

Hanwha E&C is currently working on the largest project, the Bismayah New City project that is 20 kilometers (12.4 miles) southeast of Baghdad.

Hyundai E&C, Hyundai Engineering, GS E&C and SK E&C are also involved in a $6-billion joint venture on a refinery plant project in Karbala 120 kilometers south of Baghdad.

According to the Finance Ministry, Finance Minister Hong Nam-ki held a meeting on the same day. The ministry plans to set up an emergency hotline to protect the safety of Korean people, including those working on construction sites in the Middle East.

The government also said it plans to step up its monitoring of ships traveling in the Strait of Hormuz as Iran may retaliate against the U.S. attack by blockading the strait.

The Korean Ministry of Oceans and Fisheries plans to hold continuous contact with vessels traveling in the region through satellite phones, with frequent check-in calls.

Baek Young-chan, an analyst at KB Securities, noted global oil prices may continue to fluctuate for some time, with Iran vowing to take retaliatory measures to which the United States may answer with additional strikes.

“If Iran attacks crude oil facilities, global oil prices are bound to increase over the short term. As the Strait of Hormuz accounts for around 15 percent of global crude oil transportation, global oil prices could spike more than 10 percent if Iran blocks the strait,” Baek said.

The analyst, however, insisted the fresh conflict is unlikely to lead to a full-fledged war.

BY LEE HO-JEONG, YONHAP [lee.hojeong@joongang.co.kr]

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