Two large-scale oil tankers came under attack on Thursday on the Sea of Oman around the Straits of Hormuz, a major transporting route of Middle East-produced crude oil. Reportedly, one of the oil tankers has been in operation on lease by a Japanese maritime shipper while the other is of a Norwegian ship company. The United States suspected Iran as the culprit right after the incident took place, dispatching destroyers to the site. In response, Iran refuted the allegations, criticizing that Washington plotted a conspiracy. Risks are arising from the Middle East at a time when the trade war between Washington and Beijing is casting dark clouds over the global economy.
The attack was carried out when Japanese Prime Minister Shinzo Abe was on his visit to Iran between June 12 and 14 as a self-claimed mediator to resolve the relations between the United States and Iran. The Iranian government has not shown trust in its American counterpart, only making Abe’s efforts empty. Under these circumstances, the security status in the Straits of Hormuz is bound to stay unstable for a long time.
Global oil prices bounced back immediately after the attacks on oil tankers were reported. U.S. West Texas Intermediate (WTI) crude futures for July were 2.2 percent up from the previous day, at 52.28 dollars a barrel, at the New York Mercantile Exchange. Brent crude futures for August rose by 2.23 percent to 61.31 dollars a barrel. Only 20 to 30 percent of crude oil and LNG are transported via the Straits of Hormuz. However, Korea has a high dependency rate of 70 to 80 percent.
Added to this, there are signs that ship owners and shipping companies will raise surcharges on their services shunning transport via the Straits of Hormuz. This will put an upward pressure on costs of oil exports. Poor supply of crude oil can lower refinery profits, directly to earning of oil refining businesses, which can undermine their business overall. If the prolonging conflict between the United States and Iran poses a constant security threat to the region, a way greater economic damage will be done to Korea as it depends solely on oil exports.
The Ministry of Trade, Industry and Energy and the oil export industry carried out a joint review of the current situation, concluding that risks are not imminent yet but there is a need to get ready for any possible risk. Korea is already struggling to survive various challenges at home and abroad including the U.S.-China trade war. It is the time that the Korean administration under leadership of President Moon made a concerted effort to overcome economic hurdles.