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Iraq War Costs S. Korea 550 Billion

Posted March. 22, 2003 22:34,   


Expectations for a quick end to the Iraq war have been sharply pulling down the price of oil and gold in the world market.

The war, however, continues to wreak havoc on the South Korean economy in terms of exports. In addition, its airline industry is beginning to bleed.

According to the Korea Oil Corporation, oil was sold for $23.74 per barrel at Dubai on Friday, down by $1.09. It is lowered than last year`s average of $23.01.

Thus, the 10-day average, upon which the South Korean government bases its emergency measures, dropped by 63 cents to $27.92. Just one day after the average sank down below the $29 level, it fell below the $28 line again.

Brent crude oil also dropped by $2.53 to $24.97 per barrel, and the WTI was down by $1.30 to $27.52.

The Korea Oil Corporation explained, "A couple of factors contributed to the fall of oil prices. First, the U.S. and British coalition forces secured oil fields in southern Iraq. Consequently, oil is being supplied normally in the Middle East despite the war."

The price of gold has hit its lowest level in three months. On Friday, its price for April production dropped by $6.90 per ounce and closed at $326.10 on the NYMEX.

By the turn of last month, the price rose up to its record high in six years due to North Korea`s nuclear ambitions and the looming war in the Middle East.

The Bank of Korea said that the outbreak of the Iraq war has reduced uncertainty, and the New York stock markets have rose. In response to this, people are selling gold, pulling down its price.

The Ministry of Commerce, Industry and Energy tallied that the Iraq war has caused South Korea`s damage to exports in the amount of $46 million as of 2 p.m. yesterday.

In detail, $33.2 million worth of loss was sustained due to the aborted export negotiations (or 156 cases), $9.5 due to disruption in loading and shipping (74 cases), and $2.5 from delay in receiving payments (47).

With shipping costs rising, some experts worry that profitability is also to be damaged in making exports.

For now, it costs $850 per TEU to the Middle East. But it is to be raised to $1,000 as of April 1. Even worse, the "war insurance" premium is on a steady rise for ships and airplanes navigating through the region.

The airline industry would probably be the biggest victim due to the dwindling number of passengers for international flights.

Korean Air, for example, has lost 30% of its "international customers" due to the Iraq war. This is 9% lower than last year. Bookings have also dropped. Only 74% of its international flights scheduled for this month are reserved. Last year, the booking rate was 90%.

The same is true of Asiana Airlines. Its flights are carrying passengers up to 60% capacity, except for the China route. It is worse than last year`s performance.